424B3 1 tm2222511d1_424b3.htm 424B3

 

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-258348

 

Prospectus Supplement No. 5
(to prospectus dated April 28, 2022)

 

 

Up to 44,350,000 Shares of Class A Common Stock
and
Up to 1,195,006,622 Shares of Class A Common Stock
Up to 44,350,000 Warrants to Purchase Class A Common Stock
Offered by the Selling Securityholders

 

This prospectus supplement is being filed to update and supplement the information contained in the prospectus dated April 28, 2022 (the “Prospectus”), which forms part of our registration statement on Form S-1 (No. 333-258348), as amended, with the information contained in our Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (the “SEC”) on August 3, 2022 (the “Quarterly Report”). Accordingly, we have attached the Quarterly Report to this prospectus supplement.

 

The Prospectus and this prospectus supplement relate to: (1) the issuance by us of an aggregate of up to 44,350,000 shares of our common stock, par value $0.0001 per share (“Class A common stock”), consisting of (a) 42,850,000 shares of Class A common stock issuable upon exercise of the Private Placement Warrants and (b) 1,500,000 shares of Class A common stock issuable upon exercise of the Working Capital Warrants, and (2) the offer and sale from time to time by the selling securityholders named in the Prospectus (the “Selling Securityholders”), or their permitted transferees, of (a) up to 1,195,006,622 shares of Class A common stock, consisting of (i) 1,118,905,164 issued and outstanding shares of Class A common stock, (ii) 31,751,458 shares of Class A common stock subject to vesting and/or exercise of the assumed Lucid Equity Awards and (iii) 44,350,000 shares of Class A common stock issuable upon exercise of the Private Placement Warrants and the Working Capital Warrants, and (b) 44,350,000 warrants representing the Private Placement Warrants and the Working Capital Warrants.

 

This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement. Terms used in this prospectus supplement but not defined herein shall have the meanings given to such terms in the Prospectus.

 

We are a “controlled company” within the meaning of Nasdaq rules and, as a result, qualify for exemptions from certain corporate governance requirements. Ayar, our majority stockholder, also currently has the ability to nominate five of the nine directors to our Board.

 

You should read the Prospectus, this prospectus supplement and any additional prospectus supplement or amendment carefully before you invest in our securities. Our Class A common stock is listed on The Nasdaq Stock Market LLC under the symbol “LCID”. On August 3, 2022, the closing price of our Class A common stock was $20.56 per share.

 

Investing in our Class A common stock involves a high degree of risk. See the section titled “Risk Factors” beginning on page 7 of the Prospectus and in our other documents subsequently filed with the SEC.

 

Neither the SEC nor any other state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of the Prospectus or this prospectus supplement. Any representation to the contrary is a criminal offense.

 

August 4, 2022

  

  

 

  

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the quarterly period ended June 30, 2022

 

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the transition period from              to             

 

Commission File Number: 001-39408

 

Lucid Group, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 85-0891392
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 

7373 Gateway Boulevard, Newark, CA 94560

(Address of principal executive offices) (Zip code)

 

(510) 648-3553

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading symbol(s) Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per share LCID The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes   ¨  No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    x  Yes    ¨  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large Accelerated Filer x   Accelerated Filer ¨
  Non-accelerated Filer ¨   Smaller Reporting Company ¨
        Emerging Growth Company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act).    ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨  Yes    x  No

 

Number of shares of the registrant’s common stock outstanding at July 28, 2022: 1,672,806,695

 

 

 

  

 

 

INDEX TO FORM 10-Q

 

      Page
PART I. FINANCIAL INFORMATION  
       
    Cautionary Note Regarding Forward-Looking Statements 3
    Frequently Used Terms 4
       
Item 1.   Condensed Consolidated Financial Statements (Unaudited) 7
    Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (Unaudited) 7
    Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited) 8
    Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited) 9
    Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited) 11
    Notes to Condensed Consolidated Financial Statements (Unaudited) 13
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 36
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 45
Item 4.   Control and Procedures 45
       
PART II. OTHER INFORMATION  
       
Item 1.   Legal Proceedings 46
Item 1A.   Risk Factors 46
Item 6.   Exhibits 90
       
SIGNATURES 91

 

 2 

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”), and Section 21E of the Securities and Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements may be identified by the use of words such as “estimate,” “plan,” “project,” “forecast,” “intend,” “will,” “shall,” “expect,” “anticipate,” “believe,” “seek,” “target,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict” or other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. They appear in a number of places throughout this Quarterly Report on Form 10-Q and include, but are not limited to, statements regarding our intentions, beliefs or current expectations concerning, among other things, results of operations, financial condition, liquidity, capital expenditures, prospects, growth, production volumes, strategies and the markets in which we operate, including expectations of financial and operational metrics, projections of market opportunity, market share and product sales, expectations and timing related to commercial product launches, future strategies and products, including with respect to energy storage systems and automotive partnerships, manufacturing capabilities and facilities, studio openings, sales channels and strategies, future vehicle programs, expansion and the potential success of our go-to-market strategy, our financial and operating outlook, future market launches and international expansion, including our planned manufacturing facility in Saudi Arabia and related timing and value to Lucid, and our needs for additional financing. Such forward-looking statements are based on available current market material and our current expectations, beliefs and forecasts concerning future developments. Factors that may impact such forward-looking statements include:

 

changes in domestic and foreign business, market, financial, political and legal conditions, including the ongoing conflict between Russia and Ukraine;

 

risks related to prices and availability of commodities, our supply chain, logistics, inventory management and quality control, and our ability to complete the tooling of our manufacturing facilities over time and scale production of the Lucid Air and other vehicles;

 

risks related to the uncertainty of our projected financial information;

 

risks related to the timing of expected business milestones and commercial product launches, including our ability to mass produce the Lucid Air and complete the tooling of our manufacturing facility;

 

risks related to the expansion of our manufacturing facility, the construction of new manufacturing facilities and the increase of our production capacity;

 

our ability to manage expenses;

 

risks related to future market adoption of our offerings;

 

the effects of competition and the pace and depth of electric vehicle adoption generally on our future business;

 

changes in regulatory requirements, governmental incentives and fuel and energy prices;

 

our ability to rapidly innovate;

 

our ability to enter into or maintain partnerships with original equipment manufacturers, vendors and technology providers;

 

our ability to effectively manage our growth and recruit and retain key employees, including our chief executive officer and executive team;

 

risks related to potential vehicle recalls;

 

our ability to establish and expand our brand, and capture additional market share, and the risks associated with negative press or reputational harm;

 

our ability to effectively utilize zero emission vehicle credits and obtain and utilize certain tax and other incentives;

 

our ability to issue equity or equity-linked securities in the future;

 

our ability to pay interest and principal on our indebtedness;

 

future changes to vehicle specifications which may impact performance, pricing, and other expectations;

 

the outcome of any potential litigation, government and regulatory proceedings, investigations and inquiries;

 

the impact of the global COVID-19 pandemic on our supply chain, including COVID-related shutdowns of our suppliers’ facilities in China, projected results of operations, financial performance or other financial metrics, or on any of the foregoing risks; and

 

other factors disclosed in this Quarterly Report on Form 10-Q or our other filings with the Securities and Exchange Commission (the “SEC”).

 

 3 

 

 

 

The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on our business. There can be no assurance that future developments affecting our business will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” in Part II, Item 1A. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. There may be additional risks that Lucid currently does not know or that Lucid currently believes are immaterial that could also cause actual results to differ from those contained in the forward-looking statements. In addition, forward-looking statements reflect our expectations, plans or forecasts of future events and views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our assessments to change. However, while we may elect to update the forward-looking statements at some point in the future, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. The forward-looking statements should not be relied upon as representing our assessments as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

 

Frequently Used Terms

 

Unless otherwise stated in Item I. Financial Statements and accompanying footnotes, or the context otherwise requires, references in this Quarterly Report on Form 10-Q to:

 

2009 Plan” are to the Atieva, Inc. 2009 Share Plan duly adopted by the board of directors of Legacy Lucid on December 17, 2009;

 

2014 Plan” are to the Atieva, Inc. 2014 Share Plan duly adopted by the board of directors of Legacy Lucid on May 14, 2014;

 

2021 Plan” are to the Atieva, Inc. 2021 Stock Incentive Plan duly adopted by the compensation committee of the board of directors of Legacy Lucid on January 13, 2021 and approved by Legacy Lucid’s shareholders on January 21, 2021;

 

2026 Notes” are to the 1.25% Convertible Senior Notes due 2026;

 

AMP-1” are to our Advanced Manufacturing Plant 1 in Casa Grande, Arizona;

 

Ayar” are to Ayar Third Investment Company, an affiliate of PIF;

 

Board” or “Board of Directors” are, prior to consummation of the Transactions, to the board of directors of Legacy Lucid, and, following consummation of the Transactions, to the board of directors of Lucid Group Inc., a Delaware corporation;

 

Churchill” or “CCIV” are to Churchill Capital Corp IV, a Delaware corporation and our predecessor company prior to the consummation of the Transactions, which changed its name to Lucid Group, Inc. following the consummation of the Transactions, and its consolidated subsidiaries;

 

Churchill’s Class A common stock” are to Churchill’s Class A common stock, par value $0.0001 per share;

 

Churchill’s Class B common stock” are to Churchill’s Class B common stock, par value $0.0001 per share;

 

Churchill IPO” are to the initial public offering by Churchill which closed on August 3, 2020;

 

Closing” are to the consummation of the Transactions;

 

Closing Date” are to July 23, 2021, the date on which the Transactions were consummated;

 

common stock” are, prior to the consummation of the Transactions, to Churchill’s Class A common stock and Churchill’s Class B common stock and, following the consummation of the Transactions, to the common stock of Lucid Group, Inc., par value $0.0001 per share;

 

ESG” are to the Environmental, Social and Governance;

 

EV” are to electric vehicle;

 

Exchange Ratio” are to the quotient as defined in, and calculated in accordance with, the Merger Agreement, which is 2.644;

 

 4 

 

 

Investor Rights Agreement” are to the Investor Rights Agreement, dated as of February 22, 2021, by and among the Company, the Sponsor, Ayar and certain other parties thereto;

 

Legacy Lucid” are to Atieva, Inc., d/b/a Lucid Motors, an exempted company incorporated with limited liability under the laws of the Cayman Islands, and its consolidated subsidiaries before the Closing Date;

 

Legacy Lucid Common Shares” are to the common shares, par value $0.0001 per share, of Legacy Lucid;

 

Legacy Lucid Share Plans” are to the 2009 Plan, the 2014 Plan, the 2021 Plan, in each case as amended from time to time in accordance with their terms;

 

Legacy Lucid Options” are to all issued and outstanding options to purchase or otherwise acquire Legacy Lucid Common Shares (whether or not vested) held by any person, including share options granted under any Legacy Lucid Share Plan;

 

Legacy Lucid Preferred Shares” are to, collectively, Legacy Lucid Series A Preferred Shares, Legacy Lucid Series B Preferred Shares, Legacy Lucid Series C Preferred Shares, Legacy Lucid Series D Preferred Shares and Legacy Lucid Series E Preferred Shares;

 

Legacy Lucid Series A Preferred Shares” are to the Series A preferred shares, par value $0.0001 per share, of Legacy Lucid;

 

Legacy Lucid Series B Preferred Shares” are to the Series B preferred shares, par value $0.0001 per share, of Legacy Lucid;

 

Legacy Lucid Series C Preferred Shares” are to the Series C preferred shares, par value $0.0001 per share, of Legacy Lucid;

 

Legacy Lucid Series D Preferred Shares” are to the Series D preferred shares, par value $0.0001 per share, of Legacy Lucid;

 

Legacy Lucid Series E Preferred Shares” are to the Series E preferred shares, par value $0.0001 per share, of Legacy Lucid;

 

Legacy Lucid Shares” are to the Legacy Lucid Common Shares and Legacy Lucid Preferred Shares;

 

Legacy Lucid RSUs” are to all issued and outstanding restricted stock unit awards with respect to Legacy Lucid Common Shares outstanding under any Legacy Lucid Share Plan;

 

Lucid Options” are to all issued and outstanding options to purchase shares of common stock immediately following the closing of the Merger;

 

Lucid RSUs” are to all issued and outstanding restricted stock unit awards with respect to shares of common stock immediately following the closing of the Merger;

 

Merger” are to the merger of a merger subsidiary of Churchill and Atieva, Inc., with Atieva, Inc. surviving such merger as a wholly owned subsidiary of Churchill;

 

Merger Agreement” are to that certain Agreement and Plan of Merger, dated as of February 22, 2021, by and among Churchill, Legacy Lucid and Air Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Churchill, as the same has been or may be amended, modified, supplemented or waived from time to time;

 

PIF” are to the Public Investment Fund;

 

PIPE Investment” are to the private placement subscription agreements that Churchill entered into contemporaneously with the execution of the Merger Agreement whereby Churchill has agreed to issue and sell to certain investors $2.5 billion of Churchill’s Class A common stock at a purchase price of $15.00 per share. The PIPE Investment closed simultaneously with the Closing of the Merger;

 

PIPE Investors” are to the investors participating in the PIPE Investment;

 

Private Placement Warrants” are to Churchill’s warrants issued to the Sponsor in a private placement simultaneously with the closing of the Churchill IPO;

 

 5 

 

 

Promissory Note” are to the unsecured promissory note issued by Churchill to the Sponsor in an aggregate principal amount of $1,500,000. The Sponsor has elected to exercise its option to convert the unpaid balance of the Promissory Note of $1,500,000 into Working Capital Warrants;

 

Public Warrants” are to Churchill’s warrants sold as part of the units in the Churchill IPO (whether they were purchased in the Churchill IPO or thereafter in the open market);

 

Sponsor” are to Churchill Sponsor IV LLC, a Delaware limited liability company and an affiliate of M. Klein and Company;

 

Transactions” are to the Merger, together with the other transactions consummated under the Merger Agreement and the related agreements;

 

Warrant Agreement” are to the Warrant Agreement, dated July 29, 2020, entered into in connection with the Churchill IPO by and between Continental Stock Transfer & Trust Company and Churchill; and

 

Working Capital Warrants” are to the warrants to purchase Churchill’s Class A common stock pursuant to the terms of the Promissory Note, on terms identical to the terms of the Private Placement Warrants.

 

Unless the context otherwise requires, all references in this section to “Lucid,” the “Company,” “we,” “us,” “our,” and other similar terms refer to Legacy Lucid and its subsidiaries prior to the Closing, and Lucid Group, Inc., a Delaware corporation, and its subsidiaries after the Closing.

 

 6 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

LUCID GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(in thousands, except share and per share data)

 

   June 30,
2022
   December 31,
2021
 
ASSETS          
Current assets:          
Cash and cash equivalents  $3,157,449   $6,262,905 
Short-term investments   1,136,633     
Accounts receivable, net   1,294    3,148 
Inventory   553,045    127,250 
Prepaid expenses   48,963    70,346 
Other current assets   69,105    43,328 
Total current assets   4,966,489    6,506,977 
Property, plant and equipment, net   1,615,435    1,182,153 
Right-of-use assets   198,207    161,974 
Long-term investments   278,055     
Other noncurrent assets   71,233    30,609 
TOTAL ASSETS  $7,129,419   $7,881,713 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $129,070   $41,342 
Accrued compensation   55,550    32,364 
Finance lease liabilities, current portion   4,657    4,183 
Other current liabilities   464,819    318,212 
Total current liabilities   654,096    396,101 
Finance lease liabilities, net of current portion   5,377    6,083 
Common stock warrant liability   536,635    1,394,808 
Long-term debt   1,989,200    1,986,791 
Other long-term liabilities   233,725    188,575 
Total liabilities   3,419,033    3,972,358 
Commitments and contingencies (Note 15)          
           
STOCKHOLDERS’ EQUITY          
Preferred stock, par value $0.0001; 10,000,000 shares authorized as of June 30, 2022 and December 31, 2021; no shares issued and outstanding as of June 30, 2022 and December 31, 2021        
Common stock, par value $0.0001; 15,000,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 1,673,401,436 and 1,648,413,415 shares issued and 1,672,543,611 and 1,647,555,590 shares outstanding as of June 30, 2022 and December 31, 2021, respectively   167    165 
Additional paid-in capital   10,099,209    9,995,778 
Treasury stock, at cost, 857,825 shares at June 30, 2022 and December 31, 2021   (20,716)   (20,716)
Accumulated other comprehensive loss   (691)    
Accumulated deficit   (6,367,583)   (6,065,872)
Total stockholders’ equity   3,710,386    3,909,355 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $7,129,419   $7,881,713 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 7 

 

 

LUCID GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Unaudited

(in thousands, except share and per share data)

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2022   2021   2022   2021 
Revenue  $97,336   $174   $155,011   $487 
                     
Costs and expenses                    
Cost of revenue   292,342    19    538,312    104 
Research and development   200,381    176,802    386,457    344,171 
Selling, general and administrative   163,812    72,272    386,971    203,924 
Total cost and expenses   656,535    249,093    1,311,740    548,199 
                     
Loss from operations   (559,199)   (248,919)   (1,156,729)   (547,712)
                     
Other income (expense), net                    
Change in fair value of forward contracts       (12,382)       (454,546)
Change in fair value of convertible preferred stock warrant liability               (6,976)
Change in fair value of common stock warrant liability   334,843        858,173     
Interest expense   (7,189)   (30)   (14,908)   (35)
Other income (expense), net   11,188    (390)   12,144    (400)
Total other income (expense), net   338,842    (12,802)   855,409    (461,957)
Loss before provision for income taxes   (220,357)   (261,721)   (301,320)   (1,009,669)
Provision for income taxes   68    5    391    9 
Net loss   (220,425)   (261,726)   (301,711)   (1,009,678)
Deemed dividend related to the issuance of Series E convertible preferred stock               (2,167,332)
Net loss attributable to common stockholders, basic   (220,425)   (261,726)   (301,711)   (3,177,010)
Change in fair value of dilutive warrants   (334,843)       (858,173)    
Net loss attributable to common stockholders, diluted  $(555,268)  $(261,726)  $(1,159,884)  $(3,177,010)
                     
Weighted average shares outstanding used in computing net loss per share attributable to common stockholders, basic   1,669,303,813    36,298,508    1,661,960,471    34,484,767 
Weighted average shares outstanding used in computing net loss per share attributable to common stockholders, diluted   1,686,815,404    36,298,508    1,684,328,007    34,484,767 
Net loss per share attributable to common stockholders, basic  $(0.13)  $(7.21)  $(0.18)  $(92.13)
Net loss per share attributable to common stockholders, diluted  $(0.33)  $(7.21)  $(0.69)  $(92.13)
                     
Other comprehensive loss                    
Net unrealized losses on investments, net of tax  $(691)  $   $(691)  $ 
Comprehensive loss   (221,116)   (261,726)   (302,402)   (1,009,678)
Deemed dividend related to the issuance of Series E convertible preferred stock               (2,167,332)
Comprehensive loss attributable to common stockholders  $(221,116)  $(261,726)  $(302,402)  $(3,177,010)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 8 

 

 

LUCID GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT)

Unaudited

(in thousands, except share data)

 

   Common Stock   Additional
Paid-In
   Treasury   Accumulated
Other
Comprehensive
  

Accumulated

  

Total
Stockholders’

 
Three Months Ended June 30, 2022  Shares(1)   Amount   Capital   Stock   Loss   Deficit   Equity 
Balance as of March 31, 2022   1,666,739,708   $167   $9,997,176   $(20,716)  $   $(6,147,158)  $3,829,469 
Net loss                       (220,425)   (220,425)
Net unrealized losses on investments, net of tax                   (691)       (691)
Issuance and sale of common stock for tax withholdings of employee RSUs           (8,976)               (8,976)
Issuance of common stock upon vesting of employee RSUs   960,651                         
Issuance of common stock under employee stock purchase plan   751,036        12,882                12,882 
Issuance of common stock upon exercise of stock options   4,092,216        3,735                3,735 
Stock-based compensation           94,392                94,392 
Balance as of June 30, 2022   1,672,543,611   $167   $10,099,209   $(20,716)  $(691)  $(6,367,583)  $3,710,386 

 

   Convertible
Preferred Stock
   Common Stock  

Additional

Paid-In

  

Accumulated

  

Total

Stockholders’

Equity

 
Three Months Ended June 30, 2021  Shares(1)   Amount   Shares(1)   Amount   Capital   Deficit   (Deficit)  
Balance as of March 31, 2021   1,088,999,959   $4,454,811    35,689,218   $3   $6,196   $(4,234,062)  $(4,227,863)
Net loss                       (261,726)   (261,726)
Issuance of Series E convertible preferred stock   66,909,408    1,361,273            15,719        15,719 
Stock-based compensation related to Series E convertible preferred stock       20,701                     
Issuance of common stock upon exercise of stock options           1,109,932        950        950 
Stock-based compensation                   3,748        3,748 
Balance as of June 30, 2021   1,155,909,367   $5,836,785    36,799,150   $3   $26,613   $(4,495,788)  $(4,469,172)

 

 

(1) The number of shares of convertible preferred stock and common stock issued and outstanding prior to the Merger have been retroactively adjusted by the Exchange Ratio to give effect to the reverse recapitalization treatment of the Merger. See Note 1 “Description of Business” and Note 3 “Reverse Capitalization” for more information.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 9 

 

 

LUCID GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT) - continued

Unaudited

(in thousands, except share data)

 

   Common Stock  

Additional

Paid-In

  

Treasury

  

Accumulated

Other

Comprehensive

   Accumulated  

Total

Stockholders’

 
Six Months Ended June 30, 2022  Shares(1)   Amount   Capital   Stock   Loss   Deficit   Equity 
Balance as of January 1, 2022   1,647,555,590   $165   $9,995,778   $(20,716)  $   $(6,065,872)  $3,909,355 
Net loss                       (301,711)   (301,711)
Net unrealized losses on investments, net of tax                   (691)       (691)
Issuance and sale of common stock for tax withholdings of employee RSUs           (191,241)               (191,241)
Issuance of common stock upon vesting of employee RSUs   8,041,659    1    (1)                
Issuance of common stock under employee stock purchase plan   751,036        12,882                12,882 
Issuance of common stock upon exercise of stock options   16,195,326    1    12,848                12,849 
Stock-based compensation           268,943                268,943 
Balance as of June 30, 2022   1,672,543,611   $167   $10,099,209   $(20,716)  $(691)  $(6,367,583)  $3,710,386 

 

  

Convertible

Preferred Stock

   Common Stock  

Additional

Paid-In

   Accumulated  

Total

Stockholders’

Equity

 
Six Months Ended June 30, 2021  Shares(1)   Amount   Shares(1)   Amount   Capital   Deficit   (Deficit) 
Balance as of January 1, 2021   957,159,704   $2,494,076    28,791,702   $3   $38,113   $(1,356,893)  $(1,318,777)
Net loss                       (1,009,678)   (1,009,678)
Repurchase of Series B convertible preferred stock   (3,525,365)                        
Issuance of Series D convertible preferred stock upon exercise of warrants   1,546,799    12,936                     
Issuance of Series E convertible preferred stock   200,728,229    3,206,159            (22,396)   (2,129,217)   (2,151,613)
Stock-based compensation related to Series E convertible preferred stock       123,614                     
Issuance of common stock upon exercise of stock options           8,007,448        5,266        5,266 
Stock-based compensation                   5,630        5,630 
Balance as of June 30, 2021   1,155,909,367   $5,836,785    36,799,150   $3   $26,613   $(4,495,788)  $(4,469,172)

 

 

(1) The number of shares of convertible preferred stock and common stock issued and outstanding prior to the Merger have been retroactively adjusted by the Exchange Ratio to give effect to the reverse recapitalization treatment of the Merger. See Note 1 - Description of Business and Note 3 - Reverse Capitalization for more information.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 10 

 

 

 

LUCID GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

(in thousands)

 

  

Six Months Ended
June 30,

 
   2022   2021 
Cash flows from operating activities          
Net loss  $(301,711)  $(1,009,678)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   80,690    11,738 
Amortization of insurance premium   14,924    2,747 
Non-cash operating lease cost   8,952    13,502 
Stock-based compensation   268,943    129,244 
Amortization of debt discounts and issuance costs   2,409     
Inventory write-downs   178,057     
Change in fair value of contingent forward contract liability       454,546 
Change in fair value of preferred stock warrant liability       6,976 
Change in fair value of common stock warrant liability   (858,173)    
Other non-cash items   (5)   56 
Changes in operating assets and liabilities:          
Accounts receivable   1,608    (220)
Inventory   (603,852)   (27,181)
Prepaid expenses   6,459    (22,183)
Other current assets   (32,199)   (2,380)
Other noncurrent assets   (27,556)   (3,870)
Accounts payable   49,596    (11,871)
Accrued compensation   23,186    7,990 
Operating lease liability   (6,944)   (7,742)
Other current liabilities   179,544    633 
Other long-term liabilities   7,795    3,889 
Net cash used in operating activities   (1,008,277)   (453,804)
Cash flows from investing activities:          
Purchases of property, plant and equipment   (494,900)   (206,533)
Proceed from sale of property, plant and equipment       19 
Purchases of investments   (1,419,223)    
Net cash used in investing activities   (1,914,123)   (206,514)
Cash flows from financing activities:          
Payment for short-term insurance financing note   (15,330)   (2,747)
Payment for finance lease liabilities   (2,401)   (1,364)
Proceeds from short-term insurance financing note       10,950 
Proceeds from borrowings   6,663     
Repurchase of Series B convertible preferred stock       (3,000)
Proceeds from issuance of Series D convertible preferred stock       3,000 
Proceeds from issuance of Series E convertible preferred stock       600,000 
Proceeds from exercise of stock options   12,849    5,266 
Proceeds from employee stock purchase plan   12,882     
Stock repurchases from employees for tax withholdings   (191,241)    
Payment for credit facility issuance costs   (6,631)    
Net cash (used in) provided by financing activities   (183,209)   612,105 
Net decrease in cash, cash equivalents, and restricted cash   (3,105,609)   (48,213)
Beginning cash, cash equivalents, and restricted cash   6,298,020    640,418 
Ending cash, cash equivalents, and restricted cash  $3,192,411   $592,205 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 11 

 

 

LUCID GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

Unaudited

(in thousands)

 

  

Six Months Ended

June 30,

 
   2022   2021 
Supplemental disclosure of cash flow information:        
Cash paid for interest, net of amounts capitalized  $12,282   $198 
Cash paid for taxes   480     
Supplemental disclosure of non-cash investing and financing activity:          
Increases (decreases) in purchases of property, plant and equipment included in accounts payable and accrued expenses   17,240    (24,661)
Property, plant and equipment and right-of-use assets obtained through leases   47,022    4,437 
Issuance of Series D convertible preferred stock upon exercise of preferred stock warrants       9,936 
Issuance of Series E convertible preferred stock contingent forward contracts       2,167,332 
Capital contribution upon forfeit of Series E awards       15,719 
Issuance of Series E convertible preferred stock upon settlement of contingent forward contracts        (2,621,878)
Capital leases retired upon adoption of new lease accounting standard  $   $3,257 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 12 

 

 

LUCID GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

June 30, 2022

 

NOTE 1DESCRIPTION OF BUSINESS

 

Overview

 

Lucid Group, Inc. (“Lucid”) is a technology and automotive company focused on designing, developing, manufacturing, and selling the next generation of EV, EV powertrains and battery systems.

 

Lucid was originally incorporated in Delaware on April 30, 2020 under the name Churchill Capital Corp IV (formerly known as Annetta Acquisition Corp) (“Churchill”) as a special purpose acquisition company with the purpose of effecting a merger with one or more operating businesses. On February 22, 2021, Churchill entered into a definitive merger agreement (the “Merger Agreement”) with Atieva, Inc. (“Legacy Lucid”) in which Legacy Lucid would become a wholly owned subsidiary of Churchill (the “Merger”). Upon the closing of the Merger on July 23, 2021 (the “Closing”), Churchill was immediately renamed to “Lucid Group, Inc.” The Merger between Churchill and Legacy Lucid was accounted for as a reverse recapitalization. See Note 3 “Reverse Recapitalization” for more information.

 

Throughout the notes to the condensed consolidated financial statements, unless otherwise noted, the “Company,” “we,” “us” or “our” and similar terms refer to Legacy Lucid and its subsidiaries prior to the consummation of the Merger, and Lucid and its subsidiaries after the consummation of the Merger.

 

Liquidity

 

The Company devotes its efforts to business planning, research and development, recruiting of management and technical staff, acquiring operating assets, and raising capital.

 

From inception through June 30, 2022, the Company has incurred operating losses and negative cash flows from operating activities. For the six months ended June 30, 2022 and 2021, the Company has incurred operating losses, including net losses of $301.7 million and $1,009.7 million, respectively. The Company has an accumulated deficit of $6.4 billion as of June 30, 2022.

 

During the quarter ended June 30, 2021, the Company completed the first phase of the construction of its newly built manufacturing plant in Casa Grande, Arizona (the “Arizona plant”). The Company began commercial production of its first vehicle, the Lucid Air, in September 2021 and delivered its first vehicles in late October 2021. The Company continues to expand the Arizona plant, start the construction of a manufacturing facility in the Kingdom of Saudi Arabia (the “KSA Facility”), and build a network of retail sales and service locations. The Company has plans for continued development of additional vehicle model types for future release. The aforementioned activities will require considerable capital, above and beyond the expected cash inflows from the initial sales of the Lucid Air. As such, the future operating plan involves considerable risk if secure funding sources are not identified and confirmed.

 

The Company’s existing sources of liquidity include cash, cash equivalents and investments. Historically, the Company funded operations primarily with issuances of convertible preferred stock and convertible notes. Upon the completion of the Merger, the Company received $4,400.3 million in cash proceeds, net of transaction costs. In December 2021, the Company issued an aggregate of $2,012.5 million principal amount of 1.25% convertible senior notes due in December 2026. In addition, during the six months ended June 30, 2022, the Company entered into a loan agreement with the Saudi Industrial Development Fund (“SIDF”) with an aggregate principal amount of up to approximately $1.4 billion, revolving credit facilities with Gulf International Bank (“GIB”) in an aggregate principal amount of approximately $266.5 million and a new five-year senior secured asset-based revolving credit facility (“ABL Credit Facility”) with an initial aggregate principal commitment amount of up to $1.0 billion, See Note 6 “Long-term Debt” for additional information.

 

Certain Significant Risks and Uncertainties

 

The Company’s current business activities consist of (i) generating sales from the deliveries and service of vehicles, (ii) research and development efforts to design, engineer and develop high-performance fully electric vehicles and advanced electric vehicle powertrain components, including battery pack systems, (iii) production and manufacturing ramps at existing manufacturing facilities in Casa Grande, Arizona, (iv) Phase 2 of construction at Advanced Manufacturing Plant 1 (“AMP-1”) in Casa Grande, Arizona, (v) the start of construction of a manufacturing facility in the Kingdom of Saudi Arabia, and (vi) expansion of our retail studios and service centers capabilities throughout North America and across the globe. The Company is subject to the risks associated with such activities, including the need to further develop its technology, its marketing, and distribution channels; further develop its supply chain and manufacturing; and hire additional management and other key personnel. Successful completion of the Company’s development program and, ultimately, the attainment of profitable operations are dependent upon future events, including our ability to access potential markets, and secure long-term financing.

 

 13 

 

 

The Company participates in a dynamic high-technology industry. Changes in any of the following areas could have a material adverse impact on the Company’s future financial position, results of operations, and/or cash flows: advances and trends in new technologies; competitive pressures; changes in the overall demand for its products and services; acceptance of the Company’s products and services; litigation or claims against the Company based on intellectual property, patent, regulatory, or other factors; and the Company’s ability to attract and retain employees necessary to support its growth.

 

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

 

While certain of the Company and its suppliers’ operations have from time-to-time been temporarily affected by government-mandated restrictions, the Company was able to commence deliveries of the Lucid Air to customers and to proceed with the construction of the Arizona plant. Broader impacts of the pandemic have included inflationary pressure as well as ongoing, industry-wide challenges in logistics and supply chains, such as increased port congestion, intermittent supplier delays and a shortfall of semiconductor supply. Because the Company relies on third party suppliers for the development, manufacture, and/or provision and development of many of the key components and materials used in its vehicles, as well as provisioning and servicing equipment in its manufacturing facilities, the Company has been affected by inflation and such industry-wide challenges in logistics and supply chains. While the Company continues to focus on mitigating risks to its operations and supply chain in the current industry environment, the Company expects that these industry-wide trends will continue to impact its cost structure as well as its ability and the ability of its suppliers to obtain parts, components and manufacturing equipment on a timely basis for the foreseeable future.

 

In the current circumstances, given the dynamic nature of the situation, any impact on the Company’s financial condition, results of operations or cash flows in the future continues to be difficult to estimate and predict, as it depends on future events that are highly uncertain and cannot be predicted with accuracy, including, but not limited to, the duration and continued spread of the outbreak, its severity, potential additional waves of infection, the emergence of more virulent or more dangerous strains of the virus, the actions taken to mitigate the virus or its impact, the development, distribution, efficacy and acceptance of vaccines worldwide, how quickly and to what extent normal economic and operating conditions can resume, the broader impact that the pandemic is having on the economy and our industry and specific implications the pandemic may have on the Company’s suppliers and on global logistics. See “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q (the “Quarterly Report”) for additional information regarding risks associated with the COVID-19 pandemic, including under the caption “The ongoing COVID-19 pandemic has adversely affected, and we cannot predict its ultimate impact on, our business, results of operations and financial condition.”

 

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Form 10-K filed with the SEC on February 28, 2022.

 

In management’s opinion, these unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2022 and the results of operations for the three and six months ended June 30, 2022 and 2021. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022 or any other future interim or annual period.

 

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

 

 14 

 

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates, assumptions and judgments made by management include, among others, inventory valuation, warranty reserve, the determination of the useful lives of property and equipment, fair value of preferred stock warrants, fair value of common stock warrants, fair value of contingent forward contracts liability, valuation of deferred income tax assets and uncertain tax positions, fair value of common stock and other assumptions used to measure stock-based compensation expense, and estimated incremental borrowing rates for assessing operating and financing lease liabilities. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

 

Cash, Cash Equivalents and Restricted Cash

 

The Company considers all highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents.

 

Restricted cash in other current assets and noncurrent assets is primarily related to letters of credit issued to the landlords for certain of the Company’s leasehold facilities.

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash to amounts shown in the statements of cash flows (in thousands):

 

   June 30,
2022
   December 31,
2021
   June 30,
2021
   December 31,
2020
 
Cash and cash equivalents  $3,157,449   $6,262,905   $557,938   $614,412 
Restricted cash included in other current assets   4,039    10,740    10,989    11,278 
Restricted cash included in other noncurrent assets   30,923    24,375    23,278    14,728 
Total cash, cash equivalents, and restricted cash  $3,192,411   $6,298,020   $592,205   $640,418 

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents, and investments. The Company places its cash primarily with domestic financial institutions that are federally insured within statutory limits, but at times its deposits may exceed federally insured limits.

 

Concentration of Supply Risk

 

The Company is dependent on its suppliers, the majority of which are single-source suppliers, and the inability of these suppliers to deliver necessary components of its products according to the schedule and at prices, quality levels and volumes acceptable to the Company, or its inability to efficiently manage these components, could have a material adverse effect on the Company’s results of operations and financial condition.

 

Summary of Significant Accounting Policies

 

The Company’s significant accounting policies are discussed in Note 2 of the notes to the consolidated financial statements included in the Company’s Form 10-K filed with the SEC on February 28, 2022. Except for the policy described below, there have been no significant changes to the Company’s accounting policies during the three and six months ended June 30, 2022.

 

Investments

 

The Company’s investments in marketable debt securities have been classified and accounted for as available-for-sale and they are stated at fair value. The Company classifies its investments as either short-term or long-term based on each instrument’s underlying contractual maturity date. Unrealized gains and losses on our investments of available-for-sale securities are recorded in accumulated other comprehensive loss which is included within stockholders’ equity. Interest, dividends, amortization and accretion of purchase premiums and discounts on our investments of available-for-sale securities are included in other income (expense), net. The cost of securities sold is determined using the specific identification method. Realized gains and losses on the sale of available-for-sale securities are recorded in other income (expense), net.

 

 15 

 

 

Recently Adopted Accounting Pronouncements

 

In November 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The disclosure requirements include information about the nature of the transactions and the related accounting policy, the line items on the balance sheet and income statement that are affected by the transactions, the amount applicable to each financial statement line and significant terms and conditions of the transactions. The guidance is effective for annual periods beginning after December 15, 2021 and can be applied either prospectively or retrospectively. The Company adopted ASU 2021-10 prospectively on January 1, 2022. The adoption of this ASU did not have an impact to the condensed consolidated financial statements and related disclosures.

 

NOTE 3 REVERSE RECAPITALIZATION

 

On July 23, 2021, upon the consummation of the Merger, all holders of 451,295,965 issued and outstanding Legacy Lucid common stock received shares of Lucid common stock at a deemed value of $10.00 per share after giving effect to the exchange ratio of 2.644 (the “Exchange Ratio”) resulting in 1,193,226,511 shares of Lucid common stock issued and outstanding as of the Closing and all holders of 42,182,931 issued and outstanding Legacy Lucid equity awards received Lucid equity awards covering 111,531,080 shares of Lucid common stock at a deemed value of $10.00 per share after giving effect to the Exchange Ratio, based on the following events contemplated by the Merger Agreement:

 

the cancellation and conversion of all 437,182,072 issued and outstanding shares of Legacy Lucid preferred stock into 437,182,072 shares of Legacy Lucid common stock at the conversion rate as calculated pursuant to Legacy Lucid’s memorandum and articles of association at the date and time that the Merger became effective;

 

the surrender and exchange of all 451,295,965 issued and outstanding shares of Legacy Lucid common stock (including Legacy Lucid common stock resulting from the conversion of the Legacy Lucid preferred stock) into 1,193,226,511 shares of Lucid common stock as adjusted by the Exchange Ratio;

 

the cancellation and exchange of all 25,764,610 granted and outstanding vested and unvested Legacy Lucid options, which became 68,121,210 Lucid options exercisable for shares of Lucid common stock with the same terms and vesting conditions except for the number of shares exercisable and the exercise price, each of which was adjusted by the Exchange Ratio; and

 

the cancellation and exchange of all 16,418,321 granted and outstanding vested and unvested Legacy Lucid RSUs, which became 43,409,870 Lucid RSUs for shares of Lucid common stock with the same terms and vesting conditions except for the number of shares, which was adjusted by the Exchange Ratio.

 

The other related events that occurred in connection with the Closing are summarized below:

 

Churchill entered into separate private placement subscription agreements (the “PIPE Investment”) contemporaneously with the execution of the Merger Agreement pursuant to which Churchill agreed to sell and issue an aggregate of 166,666,667 shares of common stock at a purchase price of $15.00 per share for an aggregate purchase price of $2,500.0 million. The PIPE Investment closed simultaneously with the Closing of the Merger;

 

Churchill Sponsor IV LLC (the “Churchill Sponsor”) exercised its right to convert the outstanding and unpaid amount of $1.5 million under the working capital loan provided by the Churchill Sponsor to Churchill into an additional 1,500,000 Private Placement Warrants at a price of $1.00 per warrant in satisfaction of such loan;

 

Churchill and the Churchill Sponsor entered into a letter agreement (the “Sponsor Agreement”), pursuant to which the Churchill Sponsor agreed that 17,250,000 shares of Churchill’s issued and outstanding common stock beneficially held by the Churchill Sponsor (the “Sponsor Earnback Shares”) and 14,783,333 Private Placement Warrants beneficially held by the Churchill Sponsor (the “Sponsor Earnback Warrants”) to purchase shares of the Churchill’s common stock shall become subject to transfer restrictions and contingent forfeiture provisions upon the Closing of the Merger until Lucid’s stock price exceeded certain predetermined levels in the post-Merger period. Any such shares and warrants not released from these transfer restrictions during the earnback period, which expires on the fifth anniversary of the Closing, will be forfeited back to Lucid for no consideration. See Note 12 “Earnback Shares and Warrants” for more information; and

 

Churchill redeemed 21,644 public shares of Churchill’s Class A common stock at approximately $10.00 per share for an aggregate payment of $0.2 million.

 

 16 

 

 

After giving effect to the Merger and the redemption of Churchill shares as described above, the number of shares of common stock issued and outstanding immediately following the consummation of the Merger was as follows:

 

   Shares 
Churchill public shares, prior to redemptions   207,000,000 
Less redemption of Churchill shares   (21,644)
Churchill public shares, net of redemptions   206,978,356 
Churchill Sponsor shares(1)   51,750,000 
PIPE shares(2)   166,666,667 
Total shares of Churchill common stock outstanding immediately prior to the Merger   425,395,023 
Legacy Lucid shares   1,193,226,511 
Total shares of Lucid common stock outstanding immediately after the Merger(3)(4)   1,618,621,534 

 

(1) The 51,750,000 shares beneficially owned by the Churchill Sponsor as of the Closing of the Merger includes the 17,250,000 Sponsor Earnback Shares.

 

(2) Reflects the sale and issuance of 166,666,667 shares of common stock to the PIPE Investors at $15.00 per share.

 

(3) Excludes 111,531,080 shares of common stock as of the Closing of the Merger to be reserved for potential future issuance upon the exercise of Lucid options or settlement of Lucid RSUs.

 

(4) Excludes the 85,750,000 warrants issued and outstanding as of the Closing of the Merger, which includes the 41,400,000 public warrants and the 44,350,000 Private Placement Warrants held by the Churchill Sponsor. The 44,350,000 Private Placement Warrants beneficially owned by the Churchill Sponsor as of the consummation of the Merger includes the 14,783,333 Sponsor Earnback Warrants.

 

The Merger has been accounted for as a reverse recapitalization under U.S. GAAP. Under this method of accounting, Churchill has been treated as the acquired company for financial reporting purposes. The reverse recapitalization accounting treatment was primarily determined based on the stockholders of Legacy Lucid having a relative majority of the voting power of Lucid and having the ability to nominate the majority of the members of the Lucid board of directors, senior management of Legacy Lucid comprise the senior management of Lucid, and the strategy and operations of Legacy Lucid prior to the Merger comprise the only ongoing strategy and operations of Lucid. Accordingly, for accounting purposes, the financial statements of Lucid represent a continuation of the financial statements of Legacy Lucid with the Merger being treated as the equivalent of Legacy Lucid issuing shares for the net assets of Churchill, accompanied by a recapitalization. The net assets of Churchill were recognized as of the Closing at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger are presented as those of Legacy Lucid and the accumulated deficit of Legacy Lucid has been carried forward after Closing.

 

All periods prior to the Merger have been retrospectively adjusted using the Exchange Ratio for the equivalent number of shares outstanding immediately after the Closing to effect the reverse recapitalization.

 

In connection with the Closing of the Merger, the Company raised $4,439.2 million of gross proceeds, including the contribution of $2,070.1 million of cash held in Churchill’s trust account from its initial public offering along with $2,500.0 million of cash raised by Churchill in connection with the PIPE Investment and $0.4 million of cash held in the Churchill operating cash account. The gross proceeds were net of $0.2 million paid to redeem 21,644 shares of Churchill Class A common stock held by public stockholders and $131.4 million in costs incurred by Churchill prior to the Closing. The Company additionally incurred $38.9 million of transaction costs, consisting of banking, legal, and other professional fees, of which $36.2 million was recorded as a reduction to additional paid-in capital of proceeds and the remaining $2.7 million was expensed in July 2021. The total net cash proceeds to the Company were $4,400.3 million.

 

NOTE 4 – BALANCE SHEETS COMPONENTS

 

Inventory

 

Inventory as of June 30, 2022 and December 31, 2021 were as follows (in thousands):

 

   June 30,
2022
   December 31,
2021
 
Raw materials  $400,109   $87,646 
Work in progress   103,721    30,641 
Finished goods   49,215    8,963 
Total inventory  $553,045   $127,250 

 

Inventory as of June 30, 2022 and December 31, 2021 was comprised of raw materials, work in progress related to the production of vehicles for sale and finished goods inventory including vehicles in transit to fulfill customer orders and new vehicles available for sale. We write down inventory for any excess or obsolete inventories or when we believe that the net realizable value of inventories is less than the carrying value. During the three and six months ended June 30, 2022, we recorded write-downs of $81.7 million and $178.1 million, respectively, in cost of revenues. No write-downs were recorded during the three and six months ended June 30, 2021.

 

 17 

 

 

 

 

Property, plant and equipment, net

 

Property, plant and equipment as of June 30, 2022 and December 31, 2021 were as follows (in thousands):

 

   June 30,
2022
   December 31,
2021
 
Land and land improvements  $33,302   $1,050 
Building and improvements   197,252    195,952 
Machinery, Tooling and Vehicles   687,122    601,791 
Computer equipment and software   39,587    27,968 
Leasehold improvements   160,714    135,533 
Furniture and fixtures   22,230    15,352 
Finance leases   15,437    13,601 
Construction in progress   626,294    276,919 
Total property, plant and equipment   1,781,938    1,268,166 
Less accumulated depreciation and amortization   (166,503)   (86,013)
Property, plant and equipment, net  $1,615,435   $1,182,153 

 

Construction in progress represents the costs incurred in connection with the construction of buildings or new additions to the Company’s plant facilities including tooling, which is with outside vendors. Costs classified as construction in progress include all costs of obtaining the asset and bringing it to the location in the condition necessary for its intended use. No depreciation is provided for construction in progress until such time as the assets are completed and are ready for use. Construction in progress consisted of the following (in thousands):

 

   June 30,
2022
   December 31,
2021
 
Machinery and tooling  $284,207   $132,943 
Construction of Arizona plant and KSA Facility   310,685    112,970 
Leasehold improvements   31,402    31,006 
Total construction in progress  $626,294   $276,919 

 

Depreciation and amortization expense was $42.5 million and $80.7 million, respectively, for the three and six months ended June 30, 2022, and $6.8 million and $11.7 million, respectively, for the same periods in the prior year. The amount of interest capitalized on construction in progress related to significant capital asset construction was immaterial for the three and six months ended June 30, 2022.

 

Other current liabilities

 

Other current liabilities as of June 30, 2022 and December 31, 2021 were as follows (in thousands):

 

   June 30,
2022
   December 31,
2021
 
Engineering, design, and testing accrual  $21,946   $33,950 
Construction in progress   110,405    92,590 
Accrued purchases (1)   145,654    12,225 
Retail leasehold improvements accrual   14,127    15,796 
Other professional services accrual   32,064    13,944 
Tooling liability   12,225    23,966 
Short-term insurance financing note   2,470    15,281 
Operating lease liabilities, current portion   11,721    11,056 
Other current liabilities   114,207    99,404 
Total other current liabilities  $464,819   $318,212 

 

(1) Accrued purchases primarily reflect inventory purchases and related transportation charges that had not been invoiced.

 

 18 

 

 

Other long-term liabilities

 

Other long-term liabilities as of June 30, 2022 and December 31, 2021 were as follows (in thousands):

 

   June 30,
2022
   December 31,
2021
 
Operating lease liabilities, net of current portion  $222,457   $185,323 
Other long-term liabilities   11,268    3,252 
Total other long-term liabilities  $233,725   $188,575 

 

NOTE 5 - FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

 

The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the “exit price” that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between independent market participants on the measurement date. The Company measures financial assets and liabilities at fair value at each reporting period using a fair value hierarchy, which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. This hierarchy prioritizes the inputs into three broad levels as follows:

 

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3—Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. Factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity. The sensitivity of the fair value measurement to changes in unobservable inputs may result in a significantly higher or lower measurement.

 

Cash, cash equivalents and investments are reported at their respective fair values on the Company's condensed consolidated balance sheets. The Company's short-term and long-term investments are classified as available-for-sale.

 

The following table sets forth the Company’s financial assets subject to fair value measurements on a recurring basis by level within the fair value hierarchy as of June 30, 2022 and December 31, 2021 (in thousands):

 

   June 30, 2022 
                   Reported As: 
   Amortized cost   Gross Unrealized Gains   Gross Unrealized Losses   Estimated Fair Value   Cash and cash equivalents   Short-Term Investments   Long-Term Investments 
Cash  $179,950   $   $   $179,950   $179,950   $   $ 
Level 1:                                   
Money market funds   2,710,148             2,710,148    2,710,148         
U.S. Treasury securities   945,082    518    (876)   944,724    65,002    684,916    194,806 
Subtotal   3,655,230    518    (876)   3,654,872    2,775,150    684,916    194,806 
Level 2:                                   
U.S. government agency securities   6,910        (1)   6,909    6,909         
Certificates of deposit   221,573    11    (41)   221,543    20,999    200,544     
Commercial paper   314,453    12    (171)   314,294    173,404    140,890     
Corporate debt securities   194,712    54    (197)   194,569    1,037    110,283    83,249 
Subtotal   737,648    77    (410)   737,315    202,349    451,717    83,249 
Total assets measured at fair value  $4,572,828   $595   $(1,286)  $4,572,137   $3,157,449   $1,136,633   $278,055 

 

 19 

 

 

   December 31, 2021 
   Reported As: 
   Cash and cash equivalents 
Cash  $160,888 
Level 1:     
Money market funds   6,102,017 
Total assets measured at fair value  $6,262,905 

 

During the three and six months ended June 30, 2022, there were no realized gains or losses on the sale of available-for-sale securities. Accrued interest receivable excluded from both the fair value and amortized cost basis of the available-for-sale securities was $4.2 million as of June 30, 2022, and is recorded in Other current assets on our condensed consolidated balance sheets. As of June 30, 2022, no allowance for credit losses was recorded related to an impairment of available-for-sale securities.

 

The following table summarizes our available-for-sale securities by contractual maturity:

 

   June 30, 2022 
   Amortized
cost
   Estimated
Fair Value
 
Within one year  $1,137,726   $1,136,633 
After one year through three years   277,646    278,055 
Total  $1,415,372   $1,414,688 

 

Level 3 liabilities consist of convertible preferred stock warrant liability, contingent forward contract liability and common stock warrant liability, of which the fair value was measured upon issuance and is remeasured at each reporting date. The valuation methodology and underlying assumptions are discussed further in Note 7 “Contingent Forward Contracts,” Note 8 “Convertible Preferred Stock Warrant Liability” and Note 9 “Common Stock Warrant Liability”. Significant increases (decreases) in the unobservable inputs used in determining the fair value would result in a significantly higher (lower) fair value measurement. The following table presents a reconciliation of the contingent forward contract liability, convertible preferred stock warrant liability and common stock warrant liability measured and recorded at fair value on a recurring basis (in thousands):

 

   Three Months Ended June 30, 
   2022   2021 
  

Common Stock
Warrant Liability

  

Contingent Forward
Contract Liability (1)

 
Fair value-beginning of period  $871,478   $1,164,610 
Change in fair value   (334,843)   12,382 
Settlement       (1,176,992)
Fair value-end of period  $536,635   $ 

 

   Six Months Ended June 30, 
   2022   2021 
  

Common Stock
Warrant Liability

  

Contingent Forward
Contract Liability (1)

  

Convertible
Preferred Stock
Warrant Liability (1)

 
Fair value-beginning of period  $1,394,808   $   $2,960 
Issuance       2,167,332     
Change in fair value   (858,173)   454,546    6,976 
Settlement       (2,621,878)   (9,936)
Fair value-end of period  $536,635   $   $ 

 

(1) Convertible preferred stock warrant liability and contingent forward contract liability were fully settled during the six months ended June 30, 2021.

 

 20 

 

 

NOTE 6 – LONG-TERM DEBT

 

2026 Notes

 

In December 2021, the Company issued an aggregate of $2,012.5 million principal amount of 1.25% convertible senior notes due in December 2026 (the “2026 Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, at an issuance price equal to 99.5% of the principal amount of 2026 Notes. The 2026 Notes have been designated as green bonds, whose proceeds will be allocated in accordance with the Company’s green bond framework. The 2026 Notes were issued pursuant to and are governed by an indenture dated December 14, 2021, between the Company and U.S. Bank National Association as the trustee. The proceeds from the issuance of the 2026 Notes were $1,986.6 million, net of the issuance discount and debt issuance costs.

 

The 2026 Notes are unsecured obligations which bear regular interest at 1.25% per annum and will be payable semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2022. The 2026 Notes will mature on December 15, 2026, unless repurchased, redeemed, or converted in accordance with their terms prior to such date. The 2026 Notes are convertible into cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock, at the Company’s election, at an initial conversion rate of 18.2548 shares of Class A common stock per $1,000 principal amount of 2026 Notes, which is equivalent to an initial conversion price of approximately $54.78 per share of our Class A common stock. The conversion rate is subject to customary adjustments for certain dilutive events. The Company may redeem for cash all or any portion of the 2026 Notes, at the Company’s option, on or after December 20, 2024 if the last reported sale price of our Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days at a redemption price equal to 100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest up to the day before the redemption date. The holders may require the Company to repurchase the 2026 Notes upon the occurrence of certain fundamental change transactions at a redemption price equal to 100% of the principal amount of the 2026 Notes redeemed, plus accrued and unpaid interest up to the day before the redemption date.

 

Holders of the 2026 Notes may convert all or a portion of their 2026 Notes at their option prior to September 15, 2026, in multiples of $1,000 principal amounts, only under the following circumstances:

 

during any calendar quarter commencing after the quarter ending on March 31, 2022 (and only during such calendar quarter), if the Company’s common stock price exceeds 130% of the conversion price for at least 20 trading days during the 30 consecutive trading days at the end of the prior calendar quarter;

 

during the five consecutive business days immediately after any 10 consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;

 

upon the occurrence of specified corporate events; or

 

if the Company calls any or all 2026 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the notes called for redemption.

 

On or after September 15, 2026, the 2026 Notes are convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Holders of the 2026 Notes who convert the 2026 Notes in connection with a make-whole fundamental change, as defined in the indenture governing the 2026 Notes, or in connection with a redemption may be entitled to an increase in the conversion rate.

 

The Company accounted for the issuance of the 2026 Notes as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives. The following is a summary of the 2026 Notes as of June 30, 2022 and December 31, 2021 (in millions):

 

   June 30, 2022   December 31, 2021 
Principal Amount  $2,012.5   $2,012.5 
Unamortized Debt Discounts and Issuance Costs   23.3    25.7 
Net Carrying Amount  $1,989.2   $1,986.8 
           
Fair Value (Level 2)  $1,184.0   $1,984.6 

 

 21 

 

 

The effective interest rate for the convertible note is 1.5%. The components of interest expense related to the 2026 Notes were as follows (in millions):

 

   Three Months Ended
June 30, 2022
   Six Months Ended
June 30, 2022
 
Contractual interest  $6.4   $12.7 
Amortization of debt discounts and debt issuance costs   1.2    2.4 
Interest expense  $7.6   $15.1 

 

The 2026 Notes were not eligible for conversion as of June 30, 2022 and December 31, 2021. No sinking fund is provided for the 2026 Notes, which means that the Company is not required to redeem or retire them periodically. As of June 30, 2022, the Company was in compliance with applicable covenants under the indenture governing the 2026 Notes.

 

SIDF Loan Agreement

 

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

 

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

 

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

 

GIB Facility Agreement

 

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

 

 22 

 

 

 

 

ABL Credit Facility

 

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

 

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

 

As of June 30, 2022, the Company had no outstanding borrowings under the ABL Credit Facility. Availability under the ABL Credit Facility was $252.9 million as of June 30, 2022, after giving effect to the borrowing base. The Company incurred issuance costs of $6.3 million to obtain the ABL Credit Facility, which was capitalized within other noncurrent assets on condensed consolidated balance sheets and amortized over the facility term using the straight-line method. During the three months ended June 30, 2022, amortization of the deferred issuance costs and commitment fee were not material.

 

NOTE 7 - CONTINGENT FORWARD CONTRACTS

 

In September 2018, the Company entered into a securities purchase agreement with PIF. Along with the execution of the securities purchase agreement, the Company granted PIF the right to purchase the Company’s Series D convertible preferred stock in future periods. The Company determined PIF’s right to participate in future Series D convertible preferred stock financing to be freestanding similar to a derivative in the form of contingent forward contracts and recorded the initial valuation of $18.6 million as a debt discount to the Convertible Notes issued in September 2018.

 

In March 2020, the Company received $200.0 million in exchange for 82,496,092 shares of Series D convertible preferred shares as partial settlement of the Series D contingent forward contract liability and revalued the contingent forward contract liability to the then fair value of $36.4 million and reclassified $18.2 million of the contingent forward contract liability into Series D convertible preferred stock. In June 2020, upon satisfaction of the second set of milestones (refer to Note 10 “Convertible Preferred Stock”), the Company received the remaining $200.0 million in exchange for 82,496,121 shares of Series D convertible preferred stock as final settlement of the Series D contingent forward contract liability and revalued the contingent forward contracts liability to the then fair value of $39.6 million and reclassified the liability into Series D convertible preferred stock. The Series D contingent forward contract liability incurred a total fair value loss of $8.7 million during the year ended December 31, 2020. Since the Series D contingent forward contract liability was fully settled in June 2020, there was no related outstanding contingent forward contract liability as of December 31, 2020.

 

As discussed in Note 10 “Convertible Preferred Stock”, in September 2020, along with the execution of the Securities Purchase Agreement, the Company granted Ayar Third Investment Company (“Ayar”) the right to purchase the Company’s additional Series E convertible preferred stock upon the Company’s satisfaction of certain milestones in November 2020. The Company determined Ayar’s right to participate in future Series E convertible preferred stock financing to be freestanding similar to a derivative in the form of contingent forward contracts and recorded the initial valuation of $0.8 million into contingent forward contract liabilities.

 

In December 2020, Ayar waived the Company’s remaining outstanding obligations, and the Company received $400.0 million for the issuance of Series E convertible preferred stock. Upon settlement, the Company revalued the Series E contingent forward contracts to the then fair value of $110.5 million and reclassified the contingent forward contract liability into Series E convertible preferred stock. The Company recorded a loss of $109.7 million related to fair value remeasurements of the Series E contingent forward contracts during the year ended December 31, 2020.

 

In February 2021, the Company and Ayar entered into Amendment No. 1 to the original Series E Preferred Stock Purchase Agreement (“Amendment No. 1”). Under the Amendment No. 1, Ayar and the Company agreed to enter into the third closing of additional 133,818,821 Series E convertible preferred stock at $2.99 per share, aggregating to $400.0 million. Upon the signing of the Amendment No. 1, the Company received the issuance proceeds of $400.0 million from Ayar in February 2021.

 

 23 

 

 

Amendment No. 1 also allowed the Company to provide an opportunity to all current convertible preferred stockholders other than Ayar (“Eligible Holders”) to enter into the fourth closing to purchase up to 23,737,221 shares of Series E convertible preferred stock on a pro rata basis at $2.99 per share, aggregating to $71.0 million. In addition, the amendment allowed the Company to offer for purchase at the fourth closing at $2.99 per share, a number of Series E Preferred Stock to senior management employees, directors, consultants, advisors and/or contractors of the Company (“Additional Purchasers”) and Ayar. Refer to Note 10 “Convertible Preferred Stock”.

 

In April 2021, the Company issued 66,909,408 Series E convertible preferred stock from the fourth closing at $2.99 per share for cash consideration of $200.0 million. The Company received $107.1 million of the total issuance proceeds in March 2021 and the remaining $92.9 million in April 2021. See Note 10 “Convertible Preferred Stock” for more information.

 

The Company determined the right to participate in future Series E convertible preferred share financing to be a freestanding financial instrument similar to a derivative in the form of contingent forward contracts and recorded the initial valuation of $1,444.9 million and $722.4 million for the third closing and fourth closing, respectively, as contingent forward contract liabilities. Since the contingent forward contract liability related to the third closing was fully settled in the same month following the execution of the amendment, the Company recorded no related fair value remeasurements in the condensed consolidated statements of operations.

 

The Company issued Offer Notices to certain of the Company’s management and members of the Board of Directors in March 2021 and April 2021. The Series E convertible preferred stock issued from the fourth closing included 3,034,194 shares to the Company’s management and 1,658,705 shares to members of the Board of Directors. The total issuance to the Company’s management included 535,275 shares offered to the CEO in April 2021. The offer to employees in the fourth closing to participate in future Series E convertible preferred stock financing represent a fully vested, equity classified award. The Company recorded the award’s full fair value on each recipient’s grant date as stock-based compensation, and derecognized the related contingent forward contract liability. The Company revalued the contingent forward contract liability for the remaining participants and recorded $12.4 million and $454.5 million fair value remeasurement loss related to the contingent forward contract liability for the three and six months ended June 30, 2021, respectively, with the final fair value of the contingent forward contract liability of $1.2 billion reclassified into Series E convertible preferred stock upon the fourth closing in April 2021. There was no related outstanding contingent forward contract liability as of December 31, 2021.

 

The fair value of the Series E convertible preferred stock contingent forward contract liability for the third closing was determined using a forward payoff. The Company’s inputs used in determining the fair value on the issuance date and settlement date, were as follows:

 

Stock Price  $13.79 
Volatility   100.00%
Expected term (in years)   0.01 
Risk-free rate   0.03%

 

The fair value of the Series E convertible preferred stock contingent forward contract liability for the fourth closing was determined using a forward and an option payoff. The Company’s inputs used in determining the fair value on the issuance date were as follows:

 

Fair value of Series E convertible preferred share  $13.79 
Volatility   100.00%
Expected term (in years)   0.11 
Risk-free rate   0.03%

 

The fair value of the Series E convertible preferred stock contingent forward contract liability for the fourth closing was determined as the difference between the Series E convertible preferred stock fair value and the purchase price. The Company estimated the fair value of each of the Series E convertible preferred stock on the settlement date by taking the closing price of Churchill’s Class A common stock on April 1, 2021 of $23.78 multiplied by the expected exchange ratio at the time, and discounted for lack of marketability.

 

NOTE 8 - CONVERTIBLE PREFERRED STOCK WARRANT LIABILITY

 

In March and September 2017, the Company issued two convertible preferred stock warrants to purchase a total of 1,546,799 shares of Series D convertible preferred stock, with an exercise price of $1.94 per share. The Company recorded the convertible preferred stock warrants at fair value using a Monte-Carlo simulation at issuance, which had been subsequently remeasured to fair value each reporting period with the changes recorded in the condensed consolidated statements of operations. In February 2021, all the outstanding warrants were settled in its entirety at an exercise price of $1.94 per share for an aggregate purchase price of $3.0 million. Upon final settlement, the Company converted the warrant into $12.9 million Series D convertible preferred stock, and recorded $7.0 million losses related to fair value remeasurements of the warrants in the condensed consolidated statements of operations for the six months ended June 30, 2021.

 

 24 

 

NOTE 9 - COMMON STOCK WARRANT LIABILITY

 

On July 23, 2021, in connection with the reverse recapitalization treatment of the Merger, the Company effectively issued 44,350,000 Private Placement Warrants to purchase shares of Lucid’s common stock at an exercise price of $11.50. The Private Placement Warrants were initially recognized as a liability with a fair value of $812.0 million and was remeasured to fair value of $1,394.8 million as of December 31, 2021. The Private Placement Warrants remained unexercised and were remeasured to fair value of $536.6 million as of June 30, 2022, resulting in a gain of $334.8 million and $858.2 million, respectively, for the three and six months ended June 30, 2022 recognized in the condensed consolidated statements of operations.

 

The 44,350,000 Private Placement Warrants included the 14,783,333 Sponsor Earnback Warrants subject to the contingent forfeiture provisions. The earnback triggering events were satisfied during the year ended December 31, 2021 such that the 14,783,333 Sponsor Earnback Warrants vested and are no longer subject to the transfer restrictions and contingent forfeiture provisions. See Note 12 “Earnback Shares and Warrants” for more information.

 

The Company initially estimated the fair value of the Private Placement Warrants that were subject to the contingent forfeiture provisions using a Monte-Carlo simulation which estimates a distribution of potential outcomes over the earnback period related to the achievement of the volume-weighted average trading sale price (the “VWAP”) thresholds. The present value of the payoff in each simulation is calculated, and the fair value of the liability is determined by taking the average of all present values. The fair value of the Private Placement Warrants that were subject to the contingent forfeiture provisions were as follows:

 

   July 23, 2021 
Fair value of Tranche 1 with $20.00 VWAP threshold per share  $18.16 
Fair value of Tranche 2 with $25.00 VWAP threshold per share  $18.07 
Fair value of Tranche 3 with $30.00 VWAP threshold per share  $17.92 

 

The fair value of the Private Placement Warrants that are not subject to the contingent forfeiture provisions was estimated using a Black-Scholes option pricing model, and were as follows:

 

   June 30, 2022   December 31, 2021 
Fair value of Private Placement Warrants per share  $12.10   $31.45 

 

Assumptions used in the Monte-Carlo simulation models and Black-Scholes option pricing model take into account the contract terms as well as the quoted price of the Company’s common stock in an active market. The volatility is based on the actual market activity of the Company’s peer group as well as the Company's historical volatility. The expected life is based on the remaining contractual term of the warrants, and the risk free interest rate is based on the implied yield available on U.S. Treasury securities with a maturity equivalent to the warrants’ expected life. The level 3 fair value inputs used in the Monte-Carlo simulation models and Black-Scholes option pricing models were as follows:

 

   June 30, 2022   December 31, 2021 
Volatility   85.00%   85.00%
Expected term (in years)   4.1    4.6 
Risk-free rate   3.00%   1.20%
Dividend yield   %   %

 

NOTE 10 – CONVERTIBLE PREFERRED STOCK

 

Convertible Preferred Stock

 

Upon the Closing of the Merger, the Company cancelled and converted all 1,155,909,367 shares of issued and outstanding convertible preferred stock into 1,155,909,367 shares of Lucid common stock based upon the conversion rate as calculated pursuant to Legacy Lucid’s memorandum and articles of association at the date and time that the Merger became effective. As of June 30, 2022 and December 31, 2021, there were no issued and outstanding shares of convertible preferred stock.

 

In 2014 through April 2021, the Company had issued Series A, Series B, Series C, and Series D and Series E convertible preferred stock (“Series A,” “Series B,” “Series C,” “Series D,” “Series E,” respectively) (collectively, the “Convertible Preferred Stock”).

 

Convertible preferred stock was carried at its issuance price, net of issuance costs.

 

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In September 2018, concurrent with the execution of the Security Purchase Agreement with PIF, the Company entered into a Stock Repurchase Agreement (the “Repurchase Agreement”) with Blitz Technology Hong Kong Co. Limited and LeSoar Holdings, Limited (the “Sellers”) to repurchase Series C convertible preferred stock. From September 2018 to December 31, 2019, the Company repurchased in aggregate 11,331,430 shares of Series C convertible preferred stock with $60.0 million at a per share price of $5.30 from the first and second Company repurchase.

 

Third Company Repurchase (Series C - August 2020)

 

In August 2020, the Company entered into a Stock Repurchase Agreement with the Sellers. Pursuant to the Stock Repurchase Agreement, the Company agreed to repurchase 9,656,589 shares of Series C convertible preferred stock owned by the Sellers in August 2020 at a price of $1.02 per share for total of $9.9 million. The carrying value of the repurchased Series C convertible preferred stock is $20.4 million. As such, the Company recognized $10.5 million in additional paid-in capital under stockholder’s equity in the condensed consolidated balance sheet as of December 31, 2020 related to the difference in fair value and carrying value of the Series C stock repurchased.

 

Fourth Company Repurchase (Series C - December 2020)

 

In December 2020, the Company entered into a Stock Repurchase Agreement with Blitz Technology Hong Kong Co. Limited (“Blitz”).

 

The Company agreed to repurchase 1,850,800 Series C convertible preferred stock from Blitz at a price of $1.21 per share, aggregating to $2.2 million. As the carrying amount of each share of Series C was $2.42 aggregating to $4.5 million in September 2020, the Company recognized $2.2 million as additional paid-in capital under stockholders’ deficit in the condensed consolidated balance sheet as of December 31, 2020, related to the difference in fair value and carrying value of the Series C shares repurchased.

 

Fifth Company Repurchase (Series B - December 2020)

 

On December 22, 2020, the Company entered into an agreement with JAFCO Asia Technology Fund V (“JAFCO”) whereby the Company agreed to repurchase 3,525,332 Series B convertible preferred stock having a carrying value of $4.0 million, from JAFCO for a total consideration of $3.0 million. The agreement resulted in an extinguishment of the Series B convertible preferred stock and the Company recognized $1.0 million in additional paid-in capital being the difference in fair value of the consideration payable and the carrying value of the Series B convertible preferred stock. As of the date of extinguishment and as of December 31, 2020 the Series B convertible preferred stock subject to repurchase had been mandatorily redeemable within 45 days of the agreement and accordingly had been reclassified to other accrued liabilities on the condensed consolidated balance sheets.

 

Series D Preferred Stock Issuance

 

In 2018, the Security Purchase Agreement with PIF granted PIF rights to purchase the Company’s Series D convertible stock at various tranches. The first tranche of $200.0 million had been issuable upon the approval of the PIF’s equity investment into the Company by CFIUS (refer to Note 7 “Contingent Forward Contracts”). The second and third tranches of $400.0 million each had been issuable upon the Company’s satisfaction of certain milestones related to further development and enhancement in marketing, product, and administrative activities.

 

In April 2019, upon CFIUS’s approval of PIF’s equity investment into the Company, the Company received the first $200.0 million proceeds from PIF. In October 2019, the Company received additional $400.0 million upon achieving the first set of milestones. Together with the conversion of $272.0 million Convertible Notes and accrued interest, the Company issued 374,777,280 shares of Series D convertible preferred stock at a price of $2.33 per share, for net proceeds of approximately $872.0 million during the year ended December 31, 2019.

 

In March 2020, the Company received $200.0 million of the remaining $400.0 million in proceeds from PIF and issued 82,496,092 shares of Series D in exchange. In June 2020 the Company successfully satisfied certain of the second set of milestones related to further development and enhancement in marketing, product, and administrative activities, and received a waiver from PIF for the remaining milestones. The Company received the remaining $200 million proceeds in exchange for 82,496,121 shares of Series D convertible preferred stock.

 

 26 

 

 

See activities related to the PIF Convertible Notes and Series D convertible preferred stock funding as below (in thousands):

 

Conversion of Convertible Notes  $271,985 
Series D received in April 2019   200,000 
Series D received in October 2019   400,000 
Series D received in March 2020   200,000 
Contingent forward contract liability reclassified to Series D in March 2020   18,180 
Series D received in June 2020   200,000 
Contingent forward contract liability reclassified to Series D in June 2020   21,384 
Conversion of preferred stock warrant to Series D in February 2021   3,000 
Reclassification of preferred stock warrant liability to Series D in February 2021   9,936 
Total proceeds of Series D  $1,324,485 

 

Series E Convertible Preferred Stock Issuance

 

In September 2020, the Company entered into an arrangement with Ayar to issue and sell Series E convertible preferred stock pursuant to a securities purchase agreement (the “SPAE”). Along with the execution of the SPAE, the Company granted Ayar the right to purchase additional Series E convertible preferred stock upon the Company’s satisfaction of certain milestones in November 2020. The Company determined Ayar’s right to participate in future Series E convertible preferred stock financing to be freestanding, similar to a derivative in the form of contingent forward contracts, and recorded the initial valuation of $0.8 million as a contingent forward contract liability. The contingent forward contract terms were included within the SPAE, which dictated a price of $2.99 per share of Series E convertible preferred stock. The Company needed to satisfy two sets of milestone conditions relating to further development and enhancement in marketing, product, and administrative activities for Ayar to provide funding under the SPAE.

 

Immediately upon closing of the SPAE, the Company received the full first tranche of $500.0 million in funding in exchange for 167,273,525 Series E convertible preferred stock as the requirement for the first milestones were met prior to execution of the purchase agreement. Subsequently, the Company successfully satisfied certain of the second set of milestones and received a waiver from PIF for the remaining milestones; and on December 24, 2020, the investor provided $400.0 million of funding in exchange for 133,818,821 shares as the final issuance of Series E convertible preferred stock related to the second milestones. Upon final settlement, the Company re-valued the liability associated with the contingent forward contract to the then fair value of $110.5 million from a contingent liability of $0.8 million and derecognized the liability as the contract was settled in its entirety. The Company recognized the increase in fair value of $109.7 million in the consolidated statements of operations and reclassified the liability into convertible preferred stock on the Company’s consolidated balance sheets as of December 31, 2020.

 

In February 2021, the Company and Ayar entered into Amendment No. 1 to the original Series E Preferred Stock Purchase Agreement (“Amendment No. 1”). Under the Amendment No. 1, Ayar and the Company agreed to enter into the third closing of additional 133,818,821 shares of Series E convertible preferred stock at $2.99 per share, aggregating to $400.0 million. Upon the signing of the Amendment No. 1, the Company received the issuance proceeds of $400.0 million from Ayar in February 2021.

 

Amendment No. 1 also allowed the Company to provide an opportunity to all current convertible preferred stockholders other than Ayar (“Eligible Holders”) to enter into the fourth closing to purchase up to 23,737,221 shares of Series E convertible preferred stock on a pro rata basis at $2.99 per share, aggregating to $71.0 million. In addition, the amendment allowed the Company to offer for purchase at the fourth closing at $2.99 per share, a number of Series E Preferred Stock to senior management employees, directors, consultants, advisors and/or contractors of the Company (“Additional Purchasers”). The aggregate number of Series E Preferred Stock sold at the third closing and fourth closing would not exceed 200.7 million shares (“Extension Amount”). Ayar committed to purchase the entire Extension Amount to the extent not subscribed by Eligible Holders or Additional Purchasers.

 

In April 2021, the Company issued 66,909,408 Series E convertible preferred stock from the fourth closing at $2.99 per share for cash consideration of $200.0 million. The Company received $107.1 million of the entire cash consideration in March 2021, and the remaining $92.9 million in April 2021. The Company issued Offer Notices to certain of the Company’s management and members of the Board of Directors in March 2021 and April 2021. The Series E convertible preferred stock issued from the fourth closing included 3,034,194 shares to the Company’s management and 1,658,705 shares to members of the Board of Directors. The total issuance to the Company’s management includes 535,275 shares offered to the CEO in April 2021. The offer to employees to participate in a future Series E convertible preferred stock financing represented a fully vested, equity classified award. The excess of the award’s fair value over the purchase price of $123.6 million on each recipient’s grant date during the year ended December 31, 2021 was recorded as stock-based compensation.

 

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Along with the execution of Amendment No. 1, the Company also increased the authorized number of common shares and convertible preferred stock to 1,316,758,889 and 1,155,909,398 stock, respectively.

 

NOTE 11 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

The Company has authorized the issuance of 10,000,000 shares of undesignated preferred stock with a par value of $0.0001 per share with rights and preferences, including voting rights, designated from time to time by the Board of Directors. As of June 30, 2022 and December 31, 2021, there were no issued and outstanding shares of preferred stock.

 

Common Stock

 

On July 23, 2021, in connection with the reverse recapitalization treatment of the Merger, the Company effectively issued 425,395,023 new shares of common stock upon the Closing. The Company also converted all 1,155,909,367 shares of its issued and outstanding convertible preferred stock into 1,155,909,367 new shares of common stock as of the Closing of the Merger based upon the conversion rate as calculated pursuant to Legacy Lucid’s memorandum and articles of association. Immediately following the Merger, there were 1,618,621,534 shares of common stock outstanding with a par value of $0.0001. The holder of each share of common stock is entitled to one vote.

 

Common Stock Warrants

 

On July 23, 2021, in connection with the reverse recapitalization treatment of the Merger, the Company effectively issued 41,400,000 publicly-traded warrants to purchase shares of its common stock. Each whole warrant entitled the holder to purchase one share of the Company’s common stock at a price of $11.50 per share. The public warrants were exercisable as of August 22, 2021 and expire on July 23, 2026, if not yet exercised by the holder or redeemed by the Company.

 

During the year ended December 31, 2021, an aggregate of 41,034,197 public warrants were exercised, of which 25,966,976 were exercised on a cashless basis. The aggregate cash proceeds received from the exercise of these public warrants were $173.3 million. The Company redeemed the remaining 365,803 public warrants that were not exercised by the holders at a redemption price of $0.01 per warrant.

 

A summary of activity of the Company’s issued and outstanding public warrants was as follows:

 

   December 31,
2021
 
Public warrants issued in connection with Merger on July 23, 2021   41,400,000 
Number of public warrants exercised   (41,034,197)
Public warrants redeemed   (365,803)
Issued and outstanding public warrants as of December 31, 2021    

 

Treasury Stock

 

In fiscal year 2021, the Company repurchased an aggregate of 857,825 shares of its common stock, including 712,742 shares from certain employees and 145,083 shares from Board of Directors of the Company’s predecessor, Atieva, Inc. at $24.15 per share. No common stock was repurchased for the three and six months ended June 30, 2022 and 2021.

 

Common Stock Reserved for Issuance

 

The Company’s common stock reserved for future issuances as of June 30, 2022 and December 31, 2021, were as follows:

 

   June 30,
2022
   December 31,
2021
 
Private warrants to purchase common stock   44,350,000    44,350,000 
Stock options outstanding   46,268,897    64,119,902 
Restricted stock units outstanding   41,975,024    48,234,611 
Shares available for future grants under equity plans   31,744,524    16,761,960 
If-converted common shares from convertible note   36,737,785    36,737,785 
Total shares of common stock reserved   201,076,230    210,204,258 

 

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NOTE 12 – EARNBACK SHARES AND WARRANTS

 

During the period between the Closing and the five-year anniversary of the Closing, the Churchill Sponsor has subjected the 17,250,000 Sponsor Earnback Shares of issued and outstanding common stock and 14,783,333 Sponsor Earnback Warrants of issued and outstanding Private Placement Warrants to potential forfeiture to Lucid for no consideration until the occurrence of each tranche’s respective earnback triggering event. The earnback triggering events related to achieving a volume-weighted average trading sale price greater than or equal to $20.00, $25.00, and $30.00, respectively, for any 40 trading days within any 60 consecutive trading day period were satisfied during the year ended December 31, 2021. As a result, the 17,250,000 Sponsor Earnback Shares of issued and outstanding common stock and 14,783,333 Sponsor Earnback Warrants of issued and outstanding Private Placement Warrants were vested and no longer subject to the transfer restrictions and contingent forfeiture provisions.

 

NOTE 13 – STOCK-BASED AWARDS

 

Stock Options

 

A summary of stock option activity for the six months ended June 30, 2022 was as follows:

 

   Outstanding Options 
   Number of
Options
   Weighted
Average
Exercise Price
   Weighted-Average
Remaining Contractual
Term
   Intrinsic Value (in
thousands)
 
Balance—December 31, 2021   64,119,902   $1.08    6.6   $2,370,666 
Options granted                  
Options exercised   (16,195,326)   0.79           
Options canceled   (1,655,679)   1.85           
Balance—June 30, 2022   46,268,897   $1.15    6.84   $742,613 
Options vested and exercisable June 30, 2022   31,731,833   $0.93    6.26   $515,722 

 

As of June 30, 2022, unrecognized stock-based compensation cost related to outstanding unvested stock options that are expected to vest was $8.6 million, which is expected to be recognized over a weighted-average period of 2.1 years.

 

Restricted Stock Unit

 

A summary of RSU award activity was as follows:

 

    Restricted Stock Units 
    Time-Based
Shares
   Performance-
Based Shares
   Total Shares  

Weighted-
Average Grant-

Date Fair Value

 
Balance as of December 31, 2021    32,210,200    16,024,411    48,234,611   $20.45 
Granted    11,441,063        11,441,063    19.98 
Vested    (2,616,301)   (13,934,271)   (16,550,572)   17.56 
Cancelled/Forfeited    (1,150,078)       (1,150,078)   24.06 
Balance as of June 30, 2022    39,884,884    2,090,140    41,975,024   $21.36 

 

As of June 30, 2022, unrecognized stock-based compensation cost related to outstanding unvested time-based RSUs that are expected to vest was $563.3 million, which is expected to be recognized over a weighted-average period of 2.9 years.

 

All performance-based RSUs granted to the CEO are subject to performance and market conditions. The performance condition was satisfied upon the closing of the Merger. The fair value of these performance-based RSUs was measured on the grant date, March 27, 2021, using a Monte Carlo simulation model, with the following assumptions:

 

Weighted average volatility   60.0%
Expected term (in years)   5.0 
Risk-free interest rate   0.9%
Expected dividends    

 

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The Company recognizes compensation expense on a graded vesting schedule over the requisite vesting period for the time-based awards and over the derived service period for the CEO performance-based awards. Stock-based compensation expense is recognized when the relevant performance condition is considered probable of achievement for the performance-based award. During the six months ended June 30, 2022, the market capitalization condition was met for the CEO performance-based awards for four of the five tranches and certified by the Board of Directors, representing an aggregate of 13,934,271 performance RSUs. We recorded stock-based compensation expense of $85.4 million for the four tranches during the six months ended June 30, 2022, and no such expense was recognized in the same period in the prior year. As of June 30, 2022, the unamortized expense for the fifth tranche, representing 2,090,140 RSUs, was $13.9 million which will be recognized over a period of 1.2 years. For the three and six months ended June 30, 2022, the Company withheld approximately 0.5 million and 8.5 million shares of common stock, respectively, by net settlement to meet the related tax withholding requirements related to the CEO time-based and performance-based RSUs.

 

Employee Stock Purchase Plan (“ESPP”)

 

The ESPP authorizes the issuance of shares of common stock pursuant to purchase rights granted to employees. The purchase price for each share purchased during an offering period will be the lesser of 85% of the fair market value of the share on the purchase date or 85% of the fair market value of the share on the offering date. As of June 30, 2022, unrecognized stock-based compensation cost related to the ESPP was $35.9 million, which is expected to be recognized over a weighted-average period of 1.9 years.

 

Stock-Based Compensation Expense

 

Total employee and nonemployee stock-based compensation expense for the three and six months ended June 30, 2022 and 2021, was classified in the condensed consolidated statements of operations as follows (in thousands):

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2022   2021   2022   2021 
Cost of revenue  $10,381   $   $18,980   $ 
Research and development   39,220    13,539    88,976    26,703 
Selling, general and administrative   44,791    10,910    160,987    102,541 
Total  $94,392   $24,449   $268,943   $129,244 

 

Total stock-based compensation expense for the three and six months ended June 30, 2021 included the $20.7 million and $123.6 million share-based compensation expense, respectively, related to the Series E convertible preferred shares issuance in March 2021 and April 2021. Refer to Note 7 “Contingent Forward Contracts” and Note 10 “Convertible Preferred Stock” for further detail.

 

NOTE 14 – LEASES

 

The Company has entered into various non-cancellable operating and finance lease agreements for certain of the Company’s offices, manufacturing and warehouse facilities, retail and service locations, equipment and vehicles, worldwide.

 

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The balances for the operating and finance leases where the Company is the lessee are presented as follows within the Company’s condensed consolidated balance sheets (in thousands):

 

   June 30,
2022
   December 31,
2021
 
Operating leases:          
Operating lease right-of-use assets  $198,207   $161,974 
           
Other current liabilities  $11,721   $11,056 
Other long-term liabilities   222,457    185,323 
Total operating lease liabilities  $234,178   $196,379 
           
Finance leases:          
Property, plant and equipment, net  $10,368   $10,567 
Total finance lease assets  $10,368   $10,567 
           
Finance lease liabilities, current portion  $4,657   $4,183 
Finance lease liabilities, net of current portion   5,377    6,083 
Total finance lease liabilities  $10,034   $10,266 

 

The components of lease expense are as follows within the Company’s condensed consolidated statement of operations (in thousands):

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2022   2021   2022   2021 
Operating lease expense:                    
Operating lease expense (1)  $10,749   $7,219   $20,327   $13,522 
Variable lease expense   897    579    1,675    1,159 
                     
Finance lease expense:                    
Amortization of leased assets  $1,133   $637   $2,229   $1,232 
Interest on lease liabilities   144    104    289    213 
Total finance lease expense  $1,277   $741   $2,518   $1,445 
Total lease expense  $12,923   $8,539   $24,520   $16,126 

 

(1) Includes short-term leases, which are immaterial.

 

Other information related to leases where the Company is the lessee was as follows:

 

   June 30,
2022
   December 31,
2021
 
Weighted-average remaining lease term (in years):          
Operating leases   8.0    7.8 
Finance leases   2.5    2.5 
           
Weighted-average discount rate:          
Operating leases   10.46%   10.98%
Finance leases   5.74%   5.58%

 

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As of June 30, 2022, the maturities of the Company’s operating and finance lease liabilities (excluding short-term leases) were as follows (in thousands):

 

   Operating Leases   Finance Leases 
2022 (remainder of the year)  $12,763   $2,544 
2023   46,606    4,782 
2024   47,121    2,185 
2025   46,401    674 
2026   42,846    457 
Thereafter   165,176    115 
Total minimum lease payments   360,913    10,757 
Less: Interest   (126,735)   (723)
Present value of lease obligations   234,178    10,034 
Less: Current portion   (11,721)   (4,657)
Long-term portion of lease obligations  $222,457   $5,377 

 

NOTE 15 - COMMITMENTS AND CONTINGENCIES

 

Contractual Obligations

 

As of June 30, 2022 and December 31, 2021, the Company had $746.7 million and $286.0 million, respectively, in commitments related to the Arizona manufacturing plant and equipment. These commitments represent future expected payments on open purchase orders entered into as of June 30, 2022 and December 31, 2021.

 

The Company entered into a non-cancellable long-term commitment to purchase certain inventory components. The estimated future payments having a remaining term in excess of one year as of June 30, 2022 was as follows (in thousands):

 

Years ended December 31, 

Minimum

Purchase

Commitment

 
2022 (remainder of the year)  $31,500 
2023   42,900 
2024   49,800 
Total  $124,200 

 

Legal Matters

 

From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. Some of these claims, lawsuits and other proceedings may involve highly complex issues that are subject to substantial uncertainties, and could result in damages, fines, penalties, non-monetary sanctions or relief.

 

Beginning on April 18, 2021, two individual actions and two putative class actions were filed in federal courts in Alabama, California, New Jersey and Indiana, asserting claims under the federal securities laws against the Company (f/k/a Churchill Capital Corp IV), its wholly owned subsidiary, Atieva, Inc. (“Lucid Motors”), and certain current and former officers and directors of the Company, generally relating to the Merger. On September 16, 2021, the plaintiff in the New Jersey action voluntarily dismissed that lawsuit. The remaining actions were ultimately transferred to the Northern District of California and consolidated under the caption, In re CCIV / Lucid Motors Securities Litigation, Case No. 4:21-cv-09323-YGR (the “Consolidated Class Action”). On December 30, 2021, lead plaintiffs in the Consolidated Class Action filed a revised amended consolidated complaint (the “Complaint”), which asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of shareholders who purchased stock in CCIV between February 5, 2021 and February 22, 2021. The Complaint names as defendants Lucid Motors and the Company’s chief executive officer, and generally alleges that, prior to the public announcement of the Merger, defendants purportedly made false or misleading statements regarding the expected start of production for the Lucid Air and related matters. The Complaint seeks certification of the action as a class action as well as compensatory damages, interest thereon, and attorneys’ fees and expenses. The Company moved to dismiss the Complaint on February 14, 2022. The Company believes that the plaintiffs’ claims are without merit and intends to defend itself vigorously, but the Company cannot ensure that defendants’ efforts to dismiss the Complaint will be successful or that it will avoid liability in these matters.

 

On December 3, 2021, the Company received a subpoena from the Securities and Exchange Commission (the “SEC”) requesting the production of certain documents related to an investigation by the SEC. Although there is no assurance as to the scope or outcome of this matter, the investigation appears to concern the merger between Churchill Capital Corp. IV and Atieva, Inc. and certain projections and statements. The Company is cooperating fully with the SEC in its review.

 

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In addition, two separate purported shareholders of the Company filed shareholder derivative actions, purportedly on behalf of the Company, against certain of the Company’s officers and directors in California federal court, captioned Sahr Lebbie v. Peter Rawlinson, et al., Case No. 4:22-cv-00531-YGR (N.D. Cal.) (filed on February 23, 2022). The complaint also names the Company as a nominal defendant. Based on allegations that are similar to those in the Consolidated Class Action, the Lebbie complaint asserts claims for unjust enrichment, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, abuse of control, gross mismanagement and waste of corporate assets and a claim for contribution under Sections 10(b) and 21D of the Exchange Act in connection with the Consolidated Class Action and the Williams-Spinks complaint asserts claims for breach of fiduciary duty, gross mismanagement, abuse of control, unjust enrichment, contribution under Sections 10(b) and 21D of the Exchange Act, and aiding and abetting breach of fiduciary duty in connection with the Consolidated Class Action. The complaints seek compensatory damages, interest thereon, certain corporate governance reforms, and attorneys’ fees and expenses. The Company is advancing defendants’ fees and expenses incurred in their defense of the actions.

 

On April 1, 2022 and May 31, 2022, two alleged shareholders filed putative class actions under the federal securities laws against Lucid Group, Inc. and certain officers of the Company relating to alleged statements, updated projections and guidance provided in the late 2021 to early 2022 timeframe. The complaints, which were filed in the Northern District of California, are captioned Victor W. Mangino v. Lucid Group, Inc., et al., Case No. 3:22-cv-02094-JD, and Anant Goel v. Lucid Group, Inc., et al., Case No. 3:22-cv-03176-JD. The complaints name as defendants Lucid Group, Inc. and the Company’s chief executive officer and chief financial officer, and generally allege that defendants purportedly made false or misleading statements regarding delivery and revenue projections and related matters. The complaints in these actions seek certification of the actions as class actions, as well as compensatory damages, interest thereon, and attorneys’ fees and expenses. The Company believes that the plaintiffs’ claims are without merit and intends to defend itself vigorously, but the Company cannot ensure that defendants’ efforts to dismiss the complaint will be successful or that it will avoid liability in these matters.

 

In addition, on July 11, 2022, a purported shareholder of the Company filed a shareholder derivative action, purportedly on behalf of the Company, against certain of the Company’s officers and directors in California state court, captioned Floyd Taylor v. Glenn August, et al., Superior Court, Alameda County, Case No. 22CV014130. The complaint also names the Company as a nominal defendant. Based on allegations that are similar to those in the Mangino and Goel actions, the Taylor complaint asserts claims for breach of fiduciary duty, unjust enrichment, waste of corporate assets and aiding and abetting breach of fiduciary duty. The complaint seek compensatory damages, punitive damages, interest, and attorneys’ fees and expenses. To the Company’s understanding, the matter has not been served on any defendant to date.

 

At this time, the Company does not consider any such claims, lawsuits or proceedings that are currently pending, individually or in the aggregate, including the matters referenced above, to be material to the Company’s business or likely to result in a material adverse effect on its future operating results, financial condition or cash flows should such proceedings be resolved unfavorably.

 

Indemnification

 

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to customers, vendors, investors, directors, and officers with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is indeterminable. The Company has never paid a material claim, nor has it been sued in connection with these indemnification arrangements. The Company has indemnification obligations with respect to letters of credit and surety bond primarily used as security against facility leases and utilities infrastructure in the amount of $43.9 million and $30.4 million as of June 30, 2022 and December 31, 2021, respectively, for which no liabilities are recorded on the condensed consolidated balance sheets.

 

NOTE 16 - INCOME TAXES

 

The Company's provision from income taxes for interim periods is determined using its effective tax rate that arise during the period. The Company's quarterly tax provision is subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in how the Company does business, and tax law developments.

 

The Company's effective tax rate for the three and six months ended June 30, 2022 and the same periods in the prior year differs from the U.S. statutory rate of 21% as a result of our U.S. losses for which no benefit will be realized, as well as state taxes and our foreign operations which are subject to tax rates that differ from those in the United States. The Company recorded an income tax provision for the three and six months ended June 30, 2022 of $68 thousand and $391 thousand, respectively, as compared to $5 thousand and $9 thousand for the same periods in the prior year. The increase in the income tax provision was driven by the increased activities in foreign jurisdictions. This resulted in an effective tax rate of 0.0% and (0.1)%, respectively, for the three and six months ended June 30, 2022, and 0.0% for the same periods in the prior year.

 

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There were no material changes to the Company’s unrecognized tax benefits during the three and six months ended June 30, 2022, and the Company does not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year.

 

NOTE 17 - NET LOSS PER SHARE

 

The weighted-average number of shares of common stock outstanding prior to the Merger have been retroactively adjusted by the Exchange Ratio to give effect to the reverse recapitalization treatment of the Merger. Shares of common stock issued as a result of the conversion of Legacy Lucid convertible preferred stock in connection with the Closing have been included in the basic net loss per share calculation on a prospective basis.

 

Basic and diluted net loss per share attributable to common stockholders are calculated as follows (in thousands, except share and per share amounts):

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2022   2021   2022   2021 
Net loss  $(220,425)  $(261,726)  $(301,711)  $(1,009,678)
Deemed dividend related to the issuance of Series E convertible preferred stock               (2,167,332)
Net loss attributable to common stockholders, basic   (220,425)   (261,726)   (301,711)   (3,177,010)
Change in fair value of dilutive warrants   (334,843)       (858,173)    
Net loss attributable to common stockholders, diluted  $(555,268)  $(261,726)  $(1,159,884)  $(3,177,010)
                     
Weighted-average shares outstanding, basic   1,669,303,813    36,298,508    1,661,960,471    34,484,767 
Private Placement Warrants using the treasury stock method   17,511,591        22,367,536     
Weighted-average shares outstanding, diluted(1)   1,686,815,404    36,298,508    1,684,328,007    34,484,767 
                     
Net loss per share:                    
Basic  $(0.13)  $(7.21)  $(0.18)  $(92.13)
Diluted(1)  $(0.33)  $(7.21)  $(0.69)  $(92.13)

 

(1) The presentation of our diluted loss per share for the six months ended June 30, 2022 reflects correction of an immaterial error in our previously reported diluted loss per share for the three months ended March 31, 2022 for the inclusion of the dilutive effect of our Private Placement Warrants. The adjustment resulted in a change in diluted loss per share from $(0.05) to $(0.36) and the diluted weighted average shares outstanding from 1,654,322,379 to 1,681,545,859 for the three months ended March 31, 2022.

 

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have had an anti-dilutive effect:

 

   June 30, 
Excluded Securities  2022   2021 
Convertible preferred stock (on an as-converted basis)       1,155,909,367 
Options outstanding to purchase common stock   46,268,897    69,006,644 
RSUs outstanding   39,884,884    41,678,953 
Employee stock purchase plan   4,482,280     
If-converted common shares from convertible note   36,737,785     
Total   127,373,846    1,266,594,964 

 

The 2,090,140 shares of common stock equivalents subject to RSUs are excluded from the anti-dilutive table above as the underlying shares remain contingently issuable since the market conditions have not been satisfied as of June 30, 2022.

 

NOTE 18 - EMPLOYEE BENEFIT PLAN

 

The Company has a 401(k) savings plan (the “401(k) Plan”) that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating employees may elect to contribute up to 100% of their eligible compensation, subject to certain limitations. The 401(k) Plan provides for a discretionary employer-matching contribution. The Company made no matching contribution to the 401(k) Plan for the three and six months ended June 30, 2022 and 2021.

 

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NOTE 19 - RELATED PARTY TRANSACTIONS

 

Public Investment Fund Internship Agreement

 

In July 2021, we entered into an agreement with PIF, which is an affiliate of Ayar, the controlling stockholder of the Company, to implement a recruitment and talent development program pursuant to which we agreed to evaluate, employ and train participants nominated by PIF during six-month internships, and PIF agreed to reimburse us for expenses related to participant wages, visa fees, medical insurance, airfare and housing incurred by us. We expect to be reimbursed by PIF in an aggregate of approximately $1 million in 2022 for such expenses. The expenses incurred under the agreement were $0.7 million for the three and six months ended June 30, 2022.

 

Professional Services Contract

 

In December 2021, we entered into an agreement with The Klein Group, LLC (“Klein”), an affiliate of Churchill Sponsor IV LLC who owns more than 5% of our common stock. Pursuant to the agreement, Klein will provide strategic advice and assistance in connection with capital markets and other strategic matters. The cost incurred under the agreement was $0.3 million and $0.6 million for the three and six months ended June 30, 2022, and nil for the same periods in the prior year.

 

Lease

 

In February 2022, we entered into a lease agreement with KAEC, an affiliate of PIF, for our first international manufacturing plant in the Kingdom of Saudi Arabia. The lease has an initial term of 25 years expiring in Year 2047. As of June 30, 2022, the right-of-use assets and lease liabilities related to this lease were $5.0 million and $5.2 million, respectively. The lease expense recorded during the three and six months ended June 30, 2022 was immaterial.

 

SIDF Loan Agreement

 

In February 2022, Lucid LLC entered into the SIDF Loan Agreement with the SIDF, an affiliate of PIF, which is an affiliate of Ayar, the controlling stockholder of the Company. Under the SIDF Loan Agreement, SIDF has committed to provide the SIDF Loans to Lucid LLC in an aggregate principal amount of up to SAR 5.19 billion (approximately $1.4 billion); provided that SIDF may reduce the availability of SIDF Loans under the facility in certain circumstances. See Note 6 “Long-Term Debt” for more information.

 

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

 

In February 2022, Lucid LLC entered into agreements with MISA, an affiliate of PIF, under which the Company will receive economic incentives over time, subject to certain conditions and milestones, in connection with Lucid LLC’s on-going design and construction of the Company’s KSA Facility.

 

In the three and six months ended June 30, 2022, no payments or incentives were received under these agreements.

 

GIB Facility Agreement

 

In April 2022, Lucid LLC entered into the GIB Facility Agreement with GIB. GIB is an affiliate of PIF, which is an affiliate of Ayar, the controlling stockholder of the Company. The GIB Facility Agreement provides for two committed revolving credit facilities in an aggregate principal amount of SAR 1 billion (approximately $266.5 million). See Note 6 “Long-Term Debt” for more information.

 

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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 and our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022. This discussion may contain forward-looking statements based upon Lucid’s current expectation, estimates and projections that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors”, in Part II, Item 1A of this Quarterly Report.

 

Overview

 

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

 

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

 

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

 

Impact of the COVID-19 Pandemic on our Business

 

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

 

While certain of our and our suppliers’ operations have from time-to-time been temporarily affected by government-mandated restrictions, we were able to commence deliveries of the Lucid Air to customers and to proceed with the construction of the Arizona plant. Broader impacts of the pandemic have included inflationary pressure as well as ongoing, industry-wide challenges in logistics and supply chains, such as increased port congestion, intermittent supplier delays and a shortfall of semiconductor supply. Because we rely on third party suppliers for the development, manufacture, and/or provision and development of many of the key components and materials used in our vehicles, as well as provisioning and servicing equipment in our manufacturing facilities, we have been affected by inflation and such industry-wide challenges in logistics and supply chains. While we continue to focus on mitigating risks to our operations and supply chain in the current industry environment, we expect that these industry-wide trends will continue to impact our cost structure as well as our ability and the ability of our suppliers to obtain parts, components and manufacturing equipment on a timely basis for the foreseeable future.

 

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In the current circumstances, given the dynamic nature of the situation, any impact on our financial condition, results of operations or cash flows in the future continues to be difficult to estimate and predict, as it depends on future events that are highly uncertain and cannot be predicted with accuracy, including, but not limited to, the duration and continued spread of the outbreak, its severity, potential additional waves of infection, the emergence of more virulent or more dangerous strains of the virus, the actions taken to mitigate the virus or its impact, the development, distribution, efficacy and acceptance of vaccines worldwide, how quickly and to what extent normal economic and operating conditions can resume, the broader impact that the pandemic is having on the economy and our industry and specific implications the pandemic may have on our suppliers and on global logistics. See “Risk Factors” in Part II, Item 1A of this Quarterly Report for additional information regarding risks associated with the COVID-19 pandemic, including under the caption “The ongoing COVID-19 pandemic has adversely affected, and we cannot predict its ultimate impact on, our business, results of operations and financial condition.”

 

Key Factors Affecting Our Performance

 

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

 

Design and Technology Leadership

 

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

 

Direct-to-Consumer Model

 

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

 

Establishing Manufacturing Capacity

 

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

 

Technology Innovation

 

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

 

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Inflationary Pressure

 

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

 

Results of Operations

 

Revenue

 

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

 

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

 

*nm - not meaningful

 

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

 

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

 

Cost of Revenue

 

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

 

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

 

*nm - not meaningful

 

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

 

Cost of revenue related to powertrain kits, battery pack systems, supplies and related services for electric vehicles primarily consists of direct parts and materials, shipping and handling costs, personnel costs including wages and stock-based compensation, and estimated warranty costs related to battery pack systems. Cost of battery pack systems also includes allocated overhead costs such as depreciation of manufacturing related equipment and facilities, and information technology costs.

 

Cost of revenue increased by $292.3 million and $538.2 million, respectively, for the three and six months ended June 30, 2022 as compared to the same periods in the prior year, primarily due to the manufacture and sale of Lucid Air vehicles in 2022. We incurred significant personnel and overhead costs to operate our large-scale manufacturing facilities while ramping up production, with production activity for a limited quantity of vehicles in the three and six months ended June 30, 2022. In the near term, we expect our production volume of vehicles to continue to be significantly less than our manufacturing capacity. Additionally, we recorded write downs of $81.7 million and $178.1 million, respectively, in the three and six months ended June 30, 2022 to reduce our inventories to their net realizable values and for any excess or obsolete inventories. We expect inventory write downs could negatively affect our costs of vehicle sales in upcoming periods in the near term as we ramp production volumes up toward our manufacturing capacity.

 

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Operating Expenses

 

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

 

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

 

Research and Development

 

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

 

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

 

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

 

Selling, General, and Administrative

 

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

 

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

 

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

 

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

 

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Other Income (Expense), net

 

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

 

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

 

*nm - not meaningful

 

Change in Fair Value of Contingent Forward Contracts

 

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

 

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

 

 

Change in Fair Value of Convertible Preferred Stock Warrant Liability

 

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

 

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

 

Change in Fair Value of Common Stock Warrant Liability

 

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

 

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

 

Interest Expense

 

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

 

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

 

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Other Income (Expense), net

 

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

 

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

 

Provision for Income Taxes

 

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

 

*nm - not meaningful

 

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

 

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

 

Liquidity and Capital Resources

 

Sources of Liquidity

 

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

 

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

 

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

 

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

 

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2026 Notes

 

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

 

International Manufacturing Expansion

 

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

 

Saudi Industrial Development Fund (“SIDF”) Loan Agreement

 

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

 

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

 

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

 

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

 

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

 

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Gulf International Bank (“GIB”) Facility Agreement

 

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

 

ABL Credit Facility

 

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

 

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

 

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

 

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

 

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

 

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Cash Flows

 

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

 

   Six Months Ended
June 30,
 
   2022   2021 
Cash used in operating activities  $(1,008,277)  $(453,804)
Cash used in investing activities   (1,914,123)   (206,514)
Cash (used in) provided by financing activities   (183,209)   612,105 
Net decrease in cash, cash equivalents, and restricted cash  $(3,105,609)  $(48,213)

 

Cash Used in Operating Activities

 

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

 

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

 

Cash Used in Investing Activities

 

We continue to experience negative cash flows from investing activities as we expand our business and continue to build our infrastructure. Cash flows from investing activities primarily relate to purchases of investments and capital expenditures to support our growth.

 

Net cash used in investing activities increased by $1,707.6 million to $1,914.1 million during the six months ended June 30, 2022, compared to the same period in the prior year, primarily attributable to purchases of investments of $1,419.2 million during the six months ended June 30, 2022 and an increase in capital expenditures of $288.4 million.

 

Cash Provided by Financing Activities

 

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

 

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

 

Critical Accounting Policies and Estimates

 

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

 

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

 

 44 

 

 

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.

 

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 due to 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 $4.6 billion as of June 30, 2022. 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 June 30, 2022, a hypothetical 100 basis point increase in interest rates would result in approximately $9.0 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.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q.

 

Based on their evaluation, our principal executive officer and principal financial officer concluded that as of June 30, 2022, our disclosure controls and procedures are designed to, and are effective to, provide reasonable assurance that the information we are required to disclose in reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended June 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on Effectiveness of Controls and Procedures

 

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

 45 

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

For a description of our legal proceedings, see the description set forth in the “Legal Matters” section in Note 15 “Commitments and Contingencies” to our condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report, which is incorporated herein by reference.

 

Item 1A. Risk Factors.

 

A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks and uncertainties described below, as well as the other information in this Quarterly Report, including our condensed consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below, or of additional risks and uncertainties not presently known to us or that we currently deem immaterial, could materially and adversely affect our business, results of operations, financial condition and growth prospects. In such an event, the market price of our common stock could decline, and you could lose all or part of your investment.

 

Risk Factor Summary

 

Our business is subject to numerous risks and uncertainties, including those highlighted in this section titled Item 1A. “Risk Factors,” that represent challenges that we face in connection with the successful implementation of our strategy and growth of our business. The occurrence of one or more of the events or circumstances described in this section titled Item 1A. “Risk Factors,” alone or in combination with other events or circumstances, may have an adverse effect on our business, cash flows, financial condition and results of operations. Such risks include, but are not limited to:

 

The ongoing COVID-19 pandemic has adversely affected, and we cannot predict its ultimate impact on, our business, results of operations and financial condition.

 

Our limited operating history makes evaluating our business and future prospects difficult and may increase the risk of investing in our common stock.

 

We have incurred net losses each year since our inception and expect to incur increasing expenses and substantial losses for the foreseeable future.

 

We may be unable to adequately control the substantial costs associated with our operations.

 

We have received only a limited number of reservations and orders for the Lucid Air, all of which may be cancelled.

 

The automotive industry has significant barriers to entry that we must overcome in order to manufacture and sell electric vehicles at scale.

 

The automotive market is highly competitive, and we may not be successful in competing in this industry.

 

We will initially depend on revenue generated from a single model and in the foreseeable future will be significantly dependent on a limited number of models.

 

We will not have a third-party retail product distribution and full-service network.

 

We have experienced and may in the future experience significant delays in the design, manufacture, launch and financing of our vehicles, including the Lucid Air and Project Gravity, which could harm our business and prospects.

 

If our vehicles fail to perform as expected, our ability to develop, market and sell or lease our products could be harmed.

 

We face challenges providing charging solutions for our vehicles, both domestically and internationally.

 

We have limited experience servicing our vehicles and their integrated software. If we or our partners are unable to adequately service our vehicles, our business, prospects, financial condition and results of operations may be materially and adversely affected.

 

Insufficient reserves to cover future warranty or part replacement needs or other vehicle repair requirements, including any potential software upgrades, could materially adversely affect our business, prospects, financial condition and results of operations.

 

We have no experience to date in high volume manufacture of our vehicles.

 

If we fail to successfully tool our manufacturing facilities or if our manufacturing facilities become inoperable, we will be unable to produce our vehicles and our business will be harmed.

 

 46 

 

 

Our production and our ability to sustain future growth depends upon our ability to maintain relationships with our existing suppliers and source suppliers for our critical components, and to complete building out our supply chain, while effectively managing the risks due to such relationships.

 

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 our products according to our schedule and at prices, quality levels and volumes acceptable to us, or our inability to efficiently manage these components or to implement or maintain effective inventory management and other systems, processes and personnel to support ongoing and increased production, could have a material adverse effect on our results of operations and financial condition.

 

We may not be able to accurately estimate the supply and demand for our vehicles, which could result in a variety of inefficiencies in our business and hinder our ability to generate revenue. If we fail to accurately predict our manufacturing requirements, we could incur additional costs or experience delays.

 

Increases in costs, disruption of supply or shortage of materials, in particular for lithium-ion cells, or semiconductors, could harm our business.

 

Any unauthorized control, manipulation, interruption or compromise of or access to our products or information technology systems could result in loss of confidence in us and our products, harm our business and materially adversely affect our financial performance, results of operations or prospects.

 

The loss of key personnel or an inability to attract, retain and motivate qualified personnel may impair our ability to expand our business.

 

We are highly dependent on the services of Peter Rawlinson, our Chief Executive Officer and Chief Technology Officer.

 

We are subject to substantial laws and regulations that could impose substantial costs, legal prohibitions or unfavorable changes upon our operations or products, and any failure to comply with these laws and regulations, including as they evolve, could substantially harm our business and results of operations.

 

We may face regulatory limitations on our ability to sell vehicles directly, which could materially and adversely affect its ability to sell our vehicles.

 

We may fail to adequately obtain, maintain, enforce and protect our intellectual property and may not be able to prevent third parties from unauthorized use of its intellectual property and proprietary technology. If we are unsuccessful in any of the foregoing, our competitive position could be harmed and we could be required to incur significant expenses to enforce our rights.

 

We will require additional capital to support business growth, and this capital might not be available on commercially reasonable terms, or at all.

 

If we identify material weaknesses or otherwise fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and the value of our common stock.

 

We are a “controlled company” within the meaning of the applicable rules of Nasdaq and, as a result, qualify for exemptions from certain corporate governance requirements. Our stockholders do not have the same protections afforded to stockholders of companies that are not controlled companies.

 

The Sponsor and Ayar beneficially own a significant equity interest in us and may take actions that conflict with other shareholder interests.

 

Risks Related to Our Business and Operations

 

The ongoing COVID-19 pandemic has adversely affected, and we cannot predict its ultimate impact on, our business, results of operations and financial condition.

 

The ongoing COVID-19 pandemic poses risks to our business, including through its impact on general economic conditions; manufacturing and supply chain operations; stay-at-home orders; and global financial markets. The pandemic’s impact on economic conditions has led to a global decrease in vehicle sales in markets around the world. Its continued impact on the economy, even after the pandemic has subsided, could lead consumers to further reduce spending, delay purchases of our vehicles, cancel their refundable deposits for our vehicles, or cancel their orders for our vehicles prior to delivery. 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. 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. Further, the immediate or prolonged effects of the COVID-19 pandemic could significantly affect government finances and, accordingly, the continued availability of incentives related to electric vehicle purchases and other governmental support programs.

 

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The spread of COVID-19 has also periodically disrupted our manufacturing operations and those of our suppliers. For example, the recent COVID-19 outbreak in China and the resulting lockdowns have caused parts supply delays with some impact on manufacturing operations in Arizona. Such disruptions to us and our suppliers have negatively impacted, and could continue to negatively impact the production volume of our first vehicle, the Lucid Air sedan, as well other vehicles that we may introduce from time to time. Our manufacturing operations at a limited number of facilities in Casa Grande, Arizona concentrate this risk. In addition, broader impacts of the pandemic have included inflationary pressure, which impacts our cost structure.

 

The pandemic has resulted in the imposition of travel bans and restrictions, quarantines, shelter-in-place and stay-at-home orders and business shutdowns, which have contributed to delays in the anticipated production schedule of the Lucid Air. These measures pose numerous operational risks and logistical challenges to our business. For example, we may be required to limit the number of employees and contractors at our manufacturing facilities in Casa Grande, Arizona or be required to cause a substantial number of employees and/or contractors to quarantine, which could cause further delays in tooling efforts or in the production schedule of the Lucid Air. In addition, regional, national and international travel restrictions have resulted in adverse impacts to our supply chain. For example, in certain instances, international travel restrictions have prevented our supply quality engineers from conducting in-person visits and parts production quality engineering with international suppliers, which has lengthened the time required to finalize and secure certain components of the Lucid Air. Further, our sales and marketing activities have been, and may in the future be, adversely affected due to the cancellation or reduction of in-person sales activities, meetings, events and conferences, and our planned construction and opening of our Lucid Studio sales and service facilities in key markets has been delayed. The transition of some of our personnel to a remote workforce has also increased demand on our information technology resources and systems and increased data privacy and cybersecurity risks. These restrictive measures could be in place for a significant period of time and may be reinstituted or replaced with more burdensome restrictions if conditions deteriorate, which could adversely affect our start-up, manufacturing and sales and distribution plans and timelines.

 

In addition, the COVID-19 pandemic has resulted in extreme volatility in the global financial markets, which could increase our cost of capital or limit our ability to access financing when we need it.

 

To address the uncertainties of COVID-19 and to help ensure the safety of our team members, we have implemented a vaccination mandate for certain of our employees and for certain individuals to enter many of our facilities and may implement further similar requirements in the future, which may have an impact on our hiring and/or our workforce and adversely impact our manufacturing capabilities and overall business operations.

 

The severity, magnitude and duration of the COVID-19 pandemic, including as a result of new variant and subvariant strains such as the Omicron strain and subvariants, and our economic and regulatory consequences are rapidly changing and uncertain. Accordingly, we cannot predict the ultimate impact of the COVID-19 pandemic on our business, financial condition and results of operations.

 

Our limited operating history makes evaluating our business and future prospects difficult and may increase the risk of your investment.

 

We are an early-stage company with a limited operating history, operating in a rapidly evolving and highly regulated market. Furthermore, we have only released one commercially available vehicle, and we have no experience manufacturing or selling a commercial product at scale. Because we have yet to generate significant revenue from the sale of electric vehicles, and as a result of the capital-intensive nature of our business, we expect to continue to incur substantial operating losses for the foreseeable future.

 

We have encountered and expect to continue to encounter risks and uncertainties frequently experienced by early-stage companies in rapidly changing markets, including risks relating to our ability to, among other things:

 

hire, integrate and retain professional and technical talent, including key members of management;

 

continue to make significant investments in research, development, manufacturing, marketing and sales;

 

successfully obtain, maintain, protect and enforce our intellectual property and defend against claims of intellectual property infringement, misappropriation or other violation;

 

build a well-recognized and respected brand;

 

establish, implement, refine and scale our commercial manufacturing capabilities and distribution infrastructure;

 

establish and maintain satisfactory arrangements with third-party suppliers;

 

establish and expand a customer base;

 

navigate an evolving and complex regulatory environment;

 

anticipate and adapt to changing market conditions, including consumer demand for certain vehicle types, models or trim levels, technological developments and changes in competitive landscape; and

 

successfully design, build, manufacture and market new variants and models of electric vehicles, such as Project Gravity.

 

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We have incurred net losses each year since our inception and expect to incur increasing expenses and substantial losses for the foreseeable future.

 

We have incurred net losses each year since our inception, including net loss of approximately $220.4 million and $301.7 million for the three and six months ended June 30, 2022, respectively. As of June 30, 2022, our accumulated deficit was approximately $6.4 billion. We expect to continue to incur substantial losses and increasing expenses in the foreseeable future as we:

 

continue to design, develop and manufacture our vehicles;

 

equip and expand our manufacturing facilities to produce our vehicles in Arizona and in international locations such as the Kingdom of Saudi Arabia;

 

build up inventories of parts and components for our vehicles;

 

manufacture an available inventory of our vehicles;

 

develop and deploy vehicle charging partnerships;

 

expand our design, research, development, maintenance and repair capabilities;

 

increase our sales and marketing activities and develop our distribution infrastructure; and

 

expand our general and administrative functions to support our growing operations and status as a public company.

 

If our product development or commercialization of future vehicles is delayed, our costs and expenses may be significantly higher than we currently expect. Because we will incur the costs and expenses from these efforts before we receive any incremental revenues with respect thereto, we expect our losses in future periods will be significant.

 

We may be unable to adequately control the substantial costs associated with our operations.

 

We will require significant capital to develop and grow our business. We have incurred and expect to continue to incur significant expenses, including leases, sales and distribution expenses as we build our brand and market our vehicles; expenses relating to developing and manufacturing our vehicles, tooling and expanding our manufacturing facilities; research and development expenses (including expenses related to the development of the Lucid Air, the Project Gravity SUV and other future products); raw material procurement costs; and general and administrative expenses as we scale our operations and incur the costs of being a public company. In addition, we expect to incur significant costs servicing and maintaining customers’ vehicles, including establishing our service operations and facilities. As a company, we do not have historical experience forecasting and budgeting for any of these expenses, and these expenses could be significantly higher than we currently anticipate. In addition, any disruption to our manufacturing operations, obtaining necessary equipment or supplies, expansion of our manufacturing facilities, or the procurement of permits and licenses relating to our expected manufacturing, sales and distribution model could significantly increase our expenses. In such event, we could be required to seek additional financing earlier than we expect, and such financing may not be available on commercially reasonable terms, or at all.

 

In the longer term, our ability to become profitable in the future will depend on our ability not only to effectively manage our capital expenditures and control costs on a timely basis, but also to sell in quantities and at prices sufficient to achieve our expected margins. If we are unable to appropriately price and cost-efficiently design, manufacture, market, sell, distribute and service our vehicles, our margins, profitability and prospects will be materially and adversely affected.

 

We have received only a limited number of reservations and orders for the Lucid Air, all of which may be cancelled.

 

Our customers may cancel their reservations without penalty and for any reason until they place an order for their vehicle. In addition, our customers may also cancel their orders with only the loss of their deposit. Any delays in customer deliveries or the changes in the pricing of the Lucid Air could result in significant customer cancellations. In addition, any event or incident which generates negative media coverage about us or the safety or quality of our vehicles could also result in significant customer cancellations. No assurance can be given that reservations or orders will not be cancelled and will ultimately result in the final purchase, delivery and sale or lease of vehicles. Accordingly, the number of reservations and orders have significant limitations as a measure of demand for our vehicles, including demand for particular body styles, models or trim levels, or for future vehicle sales. If we encounter delays in customer deliveries of the Lucid Air that further lengthen wait times or in the event of negative media coverage, a significant number of reservations may be cancelled.

 

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The automotive industry has significant barriers to entry that we must overcome in order to manufacture and sell electric vehicles at scale.

 

The automobile industry is characterized by significant barriers to entry, including large capital requirements, investment costs of designing, manufacturing, and distributing vehicles, long lead times to bring vehicles to market from the concept and design stage, the need for specialized design and development expertise, regulatory requirements, establishing a brand name and image, and the need to establish sales and service locations. Since we are focused on the design of electric vehicles, we face a variety of added challenges to entry that a traditional automobile manufacturer would not encounter, including additional costs of developing and producing an electric powertrain that has comparable performance to a traditional gasoline engine in terms of range and power, inexperience with servicing electric vehicles, regulations associated with the transport of batteries, the need to establish or provide access to sufficient charging locations and unproven high-volume customer demand for fully electric vehicles. While we have developed and started producing our first electric sedan and have completed the first phase of construction of our commercial manufacturing facility in Casa Grande, Arizona, we have not finished tooling all production lines at our Casa Grande facilities. If we are not able to overcome these barriers, our business, prospects, results of operations and financial condition will be negatively impacted, and our ability to grow our business will be harmed.

 

The automotive market is highly competitive, and we may not be successful in competing in this industry.

 

The global automotive market, particularly for electric and alternative fuel vehicles, is highly competitive, and we expect it will become even more so in the future. In recent years, the electric vehicle industry has grown, with several companies that focus completely or partially on the electric vehicle market. We expect additional companies to enter this market within the next several years. Electric vehicle manufacturers with which we compete include Tesla as well as an increasing number of U.S.-based and international entrants, many of which have announced plans to begin selling their own electric vehicles in the near-term. We also compete with established automobile manufacturers in the luxury vehicle segment, many of which have entered or have announced plans to enter the alternative fuel and electric vehicle market with either fully electric or plug-in hybrid versions of their vehicles. We compete for sales with luxury vehicles with internal combustion engines from established manufacturers. Many of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale, servicing, and support of their products. In addition, many of these companies have longer operating histories, greater name recognition, larger and more established sales forces, broader customer and industry relationships and other resources than we do. Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively than we do. We expect competition in our industry to significantly intensify in the future in light of increased demand for alternative fuel vehicles, continuing globalization, favorable governmental policies, and consolidation in the worldwide automotive industry. Our ability to successfully compete in our industry will be fundamental to our future success in existing and new markets. There can be no assurance that we will be able to compete successfully in our markets.

 

We currently depend on revenue generated from a single model and in the foreseeable future will be significantly dependent on a limited number of models.

 

We currently depend on revenue generated from a single vehicle model, the Lucid Air, and in the foreseeable future will be significantly dependent on a single or limited number of models. Although we have other vehicle models on our product roadmap, we currently do not expect to introduce another vehicle model for sale until 2024. We expect to rely on sales from the Lucid Air, among other sources of financing, for the capital that will be required to develop and commercialize those subsequent models. To the extent that production of the Lucid Air is delayed or reduced, or if the Lucid Air is not well-received by the market for any reason, our revenue and cash flow would be adversely affected, we may need to seek additional financing earlier than we expect, and such financing may not be available to us on commercially reasonable terms, or at all.

 

We will not have a third-party retail product distribution and full-service network.

 

Third-party dealer networks are the traditional method of vehicle sales distribution and service. Because we sell directly to consumers, we do not have a traditional dealer product distribution and service network. We have limited experience distributing directly to consumers, and we expect that continuing to build a national and global in-house sales and marketing function, including an expanded physical sales, marketing and service footprint via our Lucid Studios and service centers, will be expensive and time consuming. If our lack of a traditional dealer distribution and service network results in lost opportunities to generate sales, it could limit our ability to grow. Moreover, our business model of selling directly to consumers and directly servicing all vehicles may be limited by regulatory constraints. To the extent we are unable to successfully execute on such plans in all markets, we may be required to develop a third-party dealer distribution and service network, including developing and implementing the necessary IT infrastructure to support them, which may prove costly, time-consuming or ineffective. If our use of an in-house sales, marketing and service team is not effective, our results of operations and financial conditions could be adversely affected.

 

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Our sales will depend in part on our ability to establish and maintain confidence in our long-term business prospects among consumers, analysts and others within our industry.

 

Consumers may be less likely to purchase our products if they do not believe that our business will succeed or that our operations, including service and customer support operations will continue for many years. Similarly, suppliers and other third parties will be less likely to invest time and resources in developing business relationships with us if they are not convinced that our business will succeed. Accordingly, to build, maintain and grow our business, we must establish and maintain confidence among customers, suppliers, analysts and other parties with respect to our liquidity and long-term business prospects.

 

Maintaining such confidence may be particularly difficult as a result of many factors, including our limited operating history, others’ unfamiliarity with our products, uncertainty regarding the future of electric vehicles, any delays in scaling production, delivery and service operations to meet demand, competition and our production and sales performance compared with market expectations. Many of these factors are largely outside of our control, and any negative perceptions about our long-term business prospects, even if exaggerated or unfounded, would likely harm our business and make it more difficult to raise additional capital in the future. In addition, as discussed above, a significant number of new electric vehicle companies have recently entered the automotive industry, which is an industry that has historically been associated with significant barriers to entry and a high rate of failure. If these new entrants or other manufacturers of electric vehicles go out of business, produce vehicles that do not perform as expected or otherwise fail to meet expectations, such failures may have the effect of increasing scrutiny of others in the industry, including us, and further challenging customer, supplier and analyst confidence in our long-term prospects.

 

Our ability to generate meaningful product revenue will depend on consumer adoption of electric vehicles.

 

We are developing and producing only electric vehicles and, accordingly, our ability to generate meaningful product revenue will highly depend on sustained consumer demand for alternative fuel vehicles in general and electric vehicles in particular. If the market for electric vehicles does not develop as we expect or develops more slowly than we expect, or if there is a decrease in consumer demand for electric vehicles, our business, prospects, financial condition and results of operations will be harmed. The market for electric and other alternative fuel vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation (including government incentives and subsidies) and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors. Any number of changes in the industry could negatively affect consumer demand for electric vehicles in general and our electric vehicles in particular.

 

In addition, demand for electric vehicles may be affected by factors directly impacting automobile prices or the cost of purchasing and operating automobiles such as sales and financing incentives such as tax credits, prices of raw materials and parts and components, cost of fuel, availability of consumer credit, and governmental regulations, including tariffs, import regulation and other taxes. Volatility in demand may lead to lower vehicle unit sales, which may result in downward price pressure and adversely affect our business, prospects, financial condition and results of operations. Further, sales of vehicles in the automotive industry tend to be cyclical in many markets, which may expose us to increased volatility, especially as we expand and adjust our operations and retail strategies. Specifically, it is uncertain how such macroeconomic factors will impact us as a new entrant in an industry that has globally been experiencing a recent decline in sales.

 

Other factors that may influence the adoption of electric vehicles include:

 

perceptions about electric vehicle quality, safety, design, performance and cost;

 

perceptions about the limited range over which electric vehicles may be driven on a single battery charge;

 

perceptions about the total cost of ownership of electric vehicles, including the initial purchase price and operating and maintenance costs, both including and excluding the effect of government and other subsidies and incentives designed to promote the purchase of electric vehicles;

 

concerns about electric grid capacity and reliability;

 

perceptions about the sustainability and environmental impact of electric vehicles, including with respect to both the sourcing and disposal of materials for electric vehicle batteries and the generation of electricity provided in the electric grid;

 

the availability of other alternative fuel vehicles, including plug-in hybrid electric vehicles;

 

improvements in the fuel economy of the internal combustion engine;

 

the quality and availability of service for electric vehicles, especially in international markets;

 

volatility in the cost of oil and gasoline;

 

government regulations and economic incentives promoting fuel efficiency and alternate forms of energy;

 

access to charging stations and cost to charge an electric vehicle, especially in international markets, and related infrastructure costs and standardization;

 

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the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles; and

 

macroeconomic factors.

 

The influence of any of the factors described above or any other factors may cause a general reduction in consumer demand for electric vehicles or our electric vehicles in particular, either of which would materially and adversely affect our business, results of operations, financial condition and prospects.

 

Developments in electric vehicle or alternative fuel technology or improvements in the internal combustion engine may adversely affect the demand for our vehicles.

 

We may be unable to keep up with changes in electric vehicle technology or alternatives to electricity as a fuel source and, as a result, our competitiveness may suffer. Significant developments in alternative technologies, such as alternative battery cell technologies, hydrogen fuel cell technology, advanced gasoline, ethanol or natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and adversely affect our business and prospects in ways we do not currently anticipate. Existing and other battery cell technologies, fuels or sources of energy may emerge as customers’ preferred alternative to the technologies in our electric vehicles. Any failure by us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development and introduction of new and enhanced electric vehicles, which could result in the loss of competitiveness of our vehicles, decreased revenue and a loss of market share to competitors. In addition, we expect to compete in part on the basis of our vehicles’ range, efficiency, charging speeds and performance, and improvements in the technology offered by competitors could reduce demand for the Lucid Air or other future vehicles. As technologies change, we plan to upgrade or adapt our vehicles and introduce new models that reflect such technological developments, but our vehicles may become obsolete, and our research and development efforts may not be sufficient to adapt to changes in alternative fuel and electric vehicle technology. Additionally, as new companies and larger, existing vehicle manufacturers continue to enter the electric vehicle space, we may lose any technological advantage we may have and suffer a decline in our competitive position. Any failure by us to successfully react to changes in existing technologies or the development of new technologies could materially harm our competitive position and growth prospects.

 

Extended periods of low gasoline or other petroleum-based fuel prices could adversely affect demand for our vehicles, which would adversely affect our business, prospects, results of operations and financial condition.

 

A portion of the current and expected demand for electric vehicles results from concerns about volatility in the cost of gasoline and other petroleum-based fuel, the dependency of the United States on oil from unstable or hostile countries, government regulations and economic incentives promoting fuel efficiency and alternative forms of energy, as well as concerns about climate change resulting in part from the burning of fossil fuels. If the cost of gasoline and other petroleum-based fuel decreases significantly, the outlook for the long-term supply of oil to the United States improves, the government eliminates or modifies its regulations or economic incentives related to fuel efficiency and alternative forms of energy or there is a change in the perception that the burning of fossil fuels negatively impacts the environment, the demand for electric vehicles, including our vehicles, could be reduced, and our business and revenue may be harmed.

 

Gasoline and other petroleum-based fuel prices have historically been extremely volatile, particularly during the ongoing COVID-19 pandemic, and it is difficult to ascertain whether such volatility will continue to persist. Lower gasoline or other petroleum-based fuel prices over extended periods of time may lower the perception in government and the private sector that cheaper, more readily available energy alternatives should be developed and produced. If gasoline or other petroleum-based fuel prices remain at deflated levels for extended periods of time, the demand for electric vehicles, including our vehicles, may decrease, which would have an adverse effect on our business, prospects, financial condition and results of operations.

 

The unavailability, reduction or elimination of certain government and economic programs could have a material adverse effect on our business, prospects, financial condition and results of operations.

 

We expect to benefit from government and economic programs that encourage the development, manufacture or purchase of electric vehicles, such as zero emission vehicle credits, greenhouse gas credits and similar regulatory credits, the loss of which could harm our ability to generate revenue from the sale of such credits to other manufacturers; tax credits and other incentives to consumers, without which the net cost to consumers of our vehicles would increase, potentially reducing demand for our products; and investment tax credits for equipment, tooling and other capital needs, without which we may be unable to procure the necessary infrastructure for production to support our business and timeline; and certain other benefits, including a California sales and use tax exclusion and certain other hiring and job training credits in California and Arizona. We may also benefit from government loan programs, such as loans under the Advanced Technology Vehicles Manufacturing Loan Program administered by the U.S. Department of Energy. Any reduction, elimination or selective application of tax and other governmental programs and incentives because of policy changes, the reduced need for such programs due to the perceived success of the electric vehicle, fiscal tightening or other reasons may result in the diminished competitiveness of the electric vehicle industry generally or our electric vehicles in particular, which would adversely affect our business, prospects, financial condition and results of operations. Further, we cannot assure you that the current governmental incentives and subsidies available for purchasers of electric vehicles will remain available.

 

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While certain U.S. federal and state tax credits and other incentives for alternative energy production and alternative fuel and electric vehicles have been available in the past, there is no guarantee these programs will be available in the future. If current tax incentives are not available in the future, our financial position could be harmed.

 

We may not be able to obtain or agree on acceptable terms and conditions for all or a significant portion of the government grants, loans and other incentives for which we may apply. As a result, our business and prospects may be adversely affected.

 

We may apply for federal and state grants, loans and tax incentives under government programs designed to stimulate the economy and support the production of alternative fuel and electric vehicles and related technologies. We anticipate that in the future there will be new opportunities for us to apply for grants, loans and other incentives from the United States federal and state governments, as well as foreign governments. Our ability to obtain funds or incentives from government sources is subject to the availability of funds under applicable government programs and approval of our applications to participate in such programs. The application process for these funds and other incentives will likely be highly competitive. We cannot assure you that we will be successful in obtaining any of these additional grants, loans and other incentives. If we are not successful in obtaining any of these additional incentives and we are unable to find alternative sources of funding to meet our planned capital needs, our business and prospects could be materially adversely affected.

 

If we fail to manage our future growth effectively, we may not be able to develop, manufacture, distribute, market and sell our vehicles successfully.

 

Any failure to manage our growth effectively could materially and adversely affect our business, prospects, results of operations and financial condition. We intend to expand our operations significantly. We expect our future expansion will include:

 

expanding our management team;

 

hiring and training new personnel;

 

establishing or expanding design, manufacturing, sales and service facilities;

 

implementing and enhancing administrative and business infrastructure, systems and processes, including in connection with our transition to a public company; and

 

expanding into new markets and establishing sales, service and/or manufacturing operations in many of those markets.

 

We intend to continue to hire a significant number of additional personnel, including design and manufacturing personnel and service technicians for our vehicles. Because our vehicles are based on a different technology platform than traditional internal combustion engines, individuals with sufficient training in electric vehicles may not be available to hire, and as a result, we will need to expend significant time and expense training the employees we do hire. Competition for individuals with experience in supply chain management and logistics as well as designing, engineering, manufacturing and servicing electric vehicles is intense, and we may not be able to identify, attract, integrate, train, motivate or retain additional highly qualified personnel in the future. The failure to identify, attract, integrate, train, motivate and retain these additional employees could seriously harm our business and prospects. Our employee equity program is a key factor in our ability to attract and retain talent and continue to support the growth of the company. If we are unable to grant equity awards, or if we are forced to reduce the value of equity awards we grant due to shortage of shares available for issuance under our stock incentive plan, we may not be able to attract, hire and retain the personnel necessary for our business, which would have a material adverse effect on our business, prospects financial condition and results of operations. In addition, our success is substantially dependent upon the continued service and performance of our senior management team and key technical and vehicle management personnel. If any key personnel were to terminate their employment with us, such termination would likely increase the difficulty of managing our future growth and heighten the foregoing risks.

 

We also have no experience to date in high volume manufacturing of our vehicles. We cannot assure our investors that we will be able to develop and implement efficient, automated, low-cost manufacturing capabilities and processes, and reliable sources of component supply that will enable us to meet the quality, price, engineering, design and production standards, as well as the production volumes, required to successfully market our vehicles. We have also experienced, and may continue to experience, logistics challenges with respect to our manufacturing and warehousing facilities. Any failure to develop and implement such manufacturing processes and capabilities within our projected costs and timelines could stunt our future growth and impair our ability to produce, market, service and sell or lease our vehicles successfully. In addition, our rapid growth, competitive real estate markets, and increasing rental rates, may impact our ability to obtain suitable space to accommodate our growing operations or to renew existing leases on terms favorable to us, if at all. Any failure to obtain or renew leases for real property on terms favorable to us when we need them may limit our growth, impact our operations and have an adverse impact on our financial condition. If we fail to manage our growth effectively, such failure could result in negative publicity and damage to our brand and have a material adverse effect on our business, prospects, financial condition and results of operations.

 

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We may be unable to offer attractive leasing and financing options for the Lucid Air and future vehicles, which would adversely affect consumer demand for the Lucid Air and our future vehicles. In addition, offering leasing and financing options to customers could expose us to credit risk.

 

We offer leasing and financing of our vehicles to potential customers in the United States through a third-party financing partner and intend to do the same in other markets through third-party financing partners, but we cannot provide any assurance that such third-party financing partners will continue, or would be able or willing, to provide such services on terms acceptable to us or our customers. Furthermore, because we have only sold a limited number of vehicles and no secondary market for our vehicles exists, the future resale value of our vehicles is difficult to predict, and the possibility that resale values could be lower than we expect increases the difficulty of providing leasing terms that appeal to potential customers through such third-party financing partners. We believe that the ability to offer attractive leasing and financing options is particularly relevant to customers in the luxury vehicle segments in which we compete, and if we are unable to offer our customers an attractive option to finance the purchase of or lease the Lucid Air or planned future vehicles, such failure could substantially reduce the population of potential customers and decrease demand for our vehicles.

 

Furthermore, offering leasing and financing alternatives to customers could expose us to risks commonly associated with the extension of consumer credit. Competitive pressure and challenging markets could increase credit risk through leases and loans to financially weak customers, extended payment terms, and leases and loans into new and immature markets, and any such credit risk could be further heightened in light of the economic uncertainty and any economic recession or other downturn caused by the ongoing COVID-19 pandemic and the recent conflict in Ukraine. If we are unable to provide leasing and financing arrangements that appeal to potential customers, or if the provision of such arrangements exposes us to excessive consumer credit risk, our business, competitive position, results of operations and financial condition could be adversely affected.

 

We are subject to risks associated with autonomous driving and advanced driver assistance system technology, and we cannot guarantee that our vehicles will achieve our targeted assisted or autonomous driving functionality within our projected timeframe, if ever.

 

Our vehicles are designed with advanced driver assistance system (“ADAS”) hardware, and we expect to release a Lucid Air software update and launch Project Gravity with Level 2 (partial automation) ADAS functionality, which we plan to upgrade with additional capabilities over time. ADAS technologies are emerging and subject to known and unknown risks, and there have been accidents and fatalities associated with such technologies. The safety of such technologies depends in part on user interaction, and users, as well as other drivers on the roadways, may not be accustomed to using or adapting to such technologies. In addition, self-driving technologies are the subject of intense public scrutiny and interest, and previous accidents involving autonomous driving features in other non-Lucid vehicles, including alleged failures or misuse of such features,