Engineering & Capital Goods News

LUCID GROUP, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)


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 and expand the technological advancements from the Lucid Air. We
expect to begin production of Project Gravity in 2024. After the Lucid Air and
Project Gravity, we plan to leverage and expand 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.

Recent Developments

At-the-Market Offering


On November 8, 2022, the Company entered into an Equity Distribution Agreement
(the "Equity Distribution Agreement") with BofA Securities, Inc., Barclays
Capital Inc. and Citigroup Global Markets Inc. (collectively, the "Managers"),
under which the Company may offer and sell, from time to time, shares of its
common stock having an aggregate offering price up to $600 million. Subject to
the terms and conditions of the Equity Distribution Agreement, the Managers may
sell the shares by any method permitted by law including, without limitation, in
ordinary brokers' transactions, to or through a market maker, in privately
negotiated transactions, in block trades, in transactions that are deemed to be
"at the market offerings" as defined in Rule 415 under the Securities Act or
through a combination of any such methods of sale. The Equity Distribution
Agreement will terminate on the earlier of September 1, 2025, its termination by
the parties pursuant to the terms of the Equity Distribution Agreement, or the
issuance and sale of all of the shares through any Manager pursuant to the terms
under the Equity Distribution Agreement.

Subscription Agreement


In addition, on November 8, 2022, the Company entered into a Subscription
Agreement (the "Subscription Agreement") with Ayar, pursuant to which Ayar has
agreed to purchase from the Company, subject to certain conditions, up to $915
million (the "Maximum Investment Amount") of shares of its common stock in one
or more private placements through March 31, 2023 (the "Ayar Investment"). The
number of shares that Ayar will purchase from the Company in the Ayar Investment
will be equal to the number of shares of its common stock that the Company
actually sells pursuant to the Equity Distribution Agreement, multiplied by a
ratio, the numerator of which is approximately 60.4%, which is the number of
shares of its common stock owned by Ayar as a percentage of the total number of
shares of its common stock outstanding as of September 30, 2022, and the
denominator of which is approximately 39.6%, rounded down to the nearest whole
share. The Company will settle the Ayar Investment on the last trading day of
each calendar quarter based on the number of shares that are actually sold
pursuant to the Equity Distribution Agreement during such calendar quarter, at a
price per share equal to the weighted average price to the public of the shares
that are actually sold pursuant to the Equity Distribution Agreement during such
calendar quarter. In addition, Ayar will have the right, but not the obligation,
to enter into a subscription agreement substantially on the terms and subject to
the conditions set forth in the Subscription Agreement in respect of any
increase to the maximum offering amount under the Equity Distribution Agreement
and/or any new at-the-market
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offering of the Company's common stock made or commenced, respectively, during
the term of the Subscription Agreement. The Subscription Agreement will
terminate automatically upon the earlier of March 31, 2023, the date upon which
the Company has sold to Ayar shares for an aggregate purchase price equal to the
Maximum Investment Amount, or its termination by the parties pursuant to the
terms of the Subscription Agreement.

Potential Impact of an Economic Downturn on our Business


A global economic recession or other downturn, whether due to inflation, ongoing
conflict in Ukraine or other geopolitical events, COVID-19 or other public
health crises, interest rate increases or other policy actions by major central
banks, or other factors, may have an adverse impact on our business, prospects,
financial condition and results of operations. Adverse economic conditions as
well as uncertainty about the current and future global economic conditions may
cause our customers to defer purchases or cancel their reservations and orders
in response to tighter credit, decreased cash availability, fluctuations in
foreign currency exchange rates, and weakened consumer confidence. Reduced
demand for our products may result in significant decreases in our product
sales, which in turn would have a material adverse impact on our business,
prospects, financial condition and results of operations. Because of our premium
brand positioning and pricing, an economic downturn is likely to have a
heightened adverse effect on us compared to many of our electric vehicle and
traditional automotive industry competitors, to the extent that consumer demand
for luxury goods is reduced in favor of lower-priced alternatives. In addition,
any economic recession or other downturn could also cause logistical challenges
and other operational risks if any of our suppliers, sub-suppliers or partners
become insolvent or are otherwise unable to continue their operations, fulfill
their obligations to us, or meet our future demand. In addition, the
deterioration of conditions in global credit markets may limit our ability to
obtain external financing to fund our operations and capital expenditures on
terms favorable to us, if at all. See "Risk Factors" in Part II, Item 1A of this
Quarterly Report for additional information regarding risks associated with a
global economic recession, including under the caption "A global economic
recession or other downturn may have a material adverse impact on our business,
prospects, results of operations and financial condition."

Impact of the COVID-19 Pandemic on our Business


The COVID-19 pandemic 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 our Advanced Manufacturing Plant 1 in Casa Grande, Arizona
("AMP-1"). Broader impacts of the pandemic have included inflationary pressure
as well as ongoing, industry-wide challenges in logistics and supply chains,
such as increased port congestion, intermittent supplier delays and a shortfall
of semiconductor supply. Because we rely on third party suppliers for the
development, manufacture, and/or provision and development of many of the key
components and materials used in our vehicles, as well as provisioning and
servicing equipment in our manufacturing facilities, we have been affected by
inflation and such industry-wide challenges in logistics and supply chains.
While we continue to focus on mitigating risks to our operations and supply
chain in the current industry environment, we expect that these industry-wide
trends will continue to impact our cost structure as well as our ability and the
ability of our suppliers to obtain parts, components and manufacturing equipment
on a timely basis for the foreseeable future.

In the current circumstances, 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, prospects, results of operations and financial
condition."
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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 November 7, 2022, we had refundable reservations
and non-refundable orders of cars yet to be delivered that reflect potential
sales of over $3.2 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 September 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 expansion of AMP-1 and construction of planned Advanced Manufacturing Plant
2 in the Kingdom of Saudi Arabia ("AMP-2"). The amount and timing of our future
manufacturing capacity requirements, and resulting capital expenditures, will
depend on many factors, including the pace and results of our research and
development efforts to meet technological development milestones, our ability to
develop and launch new electric vehicles, our ability to achieve sales and
experience customer demand for our vehicles at the levels we anticipate, our
ability to utilize planned capacity in our existing facilities and our ability
to enter new markets.

Technology Innovation

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

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.


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Results of Operations

Revenue


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

                                      Three Months Ended                                                         Nine Months Ended
                                         September 30,                                                             September 30,
                                      2022               2021           $ Change          % Change              2022               2021           $ Change          % Change
Revenue                         $     195,457          $ 232          $ 195,225                  *nm       $    350,468          $ 719          $ 349,749                  *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 $195.2 million and $349.7 million, respectively, for the
three and nine months ended September 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                                                          Nine Months Ended
                                                  September 30,                                                              September 30,
                                              2022               2021            $ Change          % Change              2022               2021             $ Change           % Change
Cost of revenue                          $   492,483          $ 3,320          $ 489,163                  *nm       $ 1,030,795          $ 3,424          $ 1,027,371                  *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 $489.2 million and $1,027.4 million, respectively,
for the three and nine months ended September 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
nine months ended September 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 $186.5 million and $364.6
million, respectively, in the three and nine months ended September 30, 2022 to
reduce our inventories to their net realizable values, for any excess or
obsolete inventories, and losses from firm purchase commitments. We expect
inventory write downs could negatively affect our costs of vehicle sales in
upcoming periods in the near term as we ramp production volumes up toward our
manufacturing capacity.
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Operating Expenses


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

                                      Three Months Ended                                                                Nine Months Ended
                                         September 30,                                                                    September 30,
                                    2022               2021             $ Change             % Change               2022                 2021              $ Change            % Change
Research and development        $ 213,761          $ 242,408          $  (28,647)                 (12) %       $   600,218          $   586,579          $  13,639                    2  %
Selling, general and
administrative                    176,736            251,554             (74,818)                 (30) %           563,707              455,478            108,229                   24  %

Total operating expenses $ 390,497 $ 493,962 $ (103,465)

                 (21) %       $ 1,163,925          $ 1,042,057          $ 121,868                   12  %


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 decreased by $28.6 million, or 12%, for the
three months ended September 30, 2022 as compared to the same period in the
prior year. The decrease was primarily attributable to lower personnel-related
expenses of $31.7 million due to lower stock-based compensation expense of $25.1
million, and a decrease of $18.5 million in allocated facilities cost, partially
offset by an increase of $26.0 million for prototype material, engineering,
design and testing services. The stock-based compensation expense was lower
primarily due to the initial recognition of the cumulative expense recognized
for the three months ended September 30, 2021 related to the restricted stock
units ("RSUs") upon the closing of the merger of a merger subsidiary of
Churchill and Atieva, Inc., with Atieva, Inc. surviving such merger as a wholly
owned subsidiary of Churchill (the "Merger").

Research and development expense increased by $13.6 million, or 2%, for the nine
months ended September 30, 2022 as compared to the same period in the prior
year. The increase was primarily attributable to higher personnel-related
expenses of $41.0 million due to higher stock-based compensation expense of
$37.2 million and an increase of $22.7 million for prototype material,
engineering, design and testing services, partially offset by decreases of $33.7
million in allocated facilities costs and $18.9 million from lower utilization
of contractors and professional fees. The stock-based compensation expense for
the nine months ended September 30, 2021 included expenses recognized related to
the RSUs upon the closing of the Merger, and the fourth closing of the Legacy
Lucid Series E preferred stock issuance.

Selling, General, and Administrative


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

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

Selling, general, and administrative expense decreased by $74.8 million, or 30%,
for the three months ended September 30, 2022 as compared to the same period in
the prior year. The decrease was primarily attributable to lower
personnel-related expenses of $116.4 million (decrease in stock-based
compensation expense of $139.3 million, offset by $22.9 million increase due to
our growth in headcount), partially offset by higher utilization of contractors
and professional fees of $19.4 million, and increases in other general corporate
expenses of $10.1 million, allocated facilities costs of $6.2 million, and sales
and marketing expenses of $4.3 million. The stock-based compensation expense was
lower primarily due to initial recognition of the cumulative expense recognized
for the three months ended September 30, 2021 related to the RSUs upon the
closing of the Merger.

Selling, general, and administrative expense increased by $108.2 million, or
24%, for the nine months ended September 30, 2022 as compared to the same period
in the prior year. The increase was primarily attributable to higher utilization
of contractors and professional fees of $37.5
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million, and increases in allocated facilities costs of $23.5 million, other
general corporate expenses of $18.5 million, and sales and marketing expenses of
$14.5 million. The increase was also attributable to higher personnel related
expenses of $9.7 million ($90.6 million increase due to our growth in headcount,
partially offset by lower stock-based compensation expense of $80.9 million).
The stock-based compensation expense for the nine months ended September 30,
2021 included expenses recognized related to the RSUs upon the closing of the
Merger, and the fourth closing of the Legacy Lucid Series E preferred stock
issuance.

Other Income (Expense), net


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

                                        Three Months Ended                                                              Nine Months Ended
                                           September 30,                                                                  September 30,
                                      2022               2021             $ Change            % Change               2022                2021               $ Change             % Change
Other income (expense), net:
Change in fair value of forward
contracts                         $       -          $       -          $       -                     *nm       $         -          $ (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             140,146            (24,787)           164,933                     *nm           998,319             (24,787)           1,023,106                     *nm
Transaction costs expensed                -             (2,717)             2,717                 (100) %                 -              (2,717)               2,717                 (100) %
Interest income                      24,373                  -             24,373                     *nm            27,284                   -               27,284                     *nm
Interest expense                     (7,613)               (76)            (7,537)                    *nm           (22,521)               (111)             (22,410)                    *nm
Other income (expense), net             665                249                416                  167  %             9,898                (151)              10,049                     *nm
Total other income (expense), net $ 157,571          $ (27,331)         $ 184,902                     *nm       $ 1,012,980          $ (489,288)         $ 1,502,268                     *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 $454.5 million,
for the nine months ended September 30, 2022, as compared to the same period in
the prior year. The Legacy Lucid Series E contingent forward contracts were
settled during the 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 nine months ended September 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 September 30, 2022.
The liability was remeasured to fair value, resulting in gains of $140.1 million
and $998.3 million, respectively, for the three and nine months ended
September 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.
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Transaction Costs Expensed


In connection with the Merger, the Company incurred $38.9 million in one-time
direct and incremental transaction costs, consisting of banking, legal, and
other professional fees. Transaction costs incurred by Lucid were allocated on a
relative fair value basis between equity and liability-classified instruments
deemed to be issued for financial reporting purposes at the Closing by Lucid.
The Company's $36.2 million transaction costs allocable to equity-classified
instruments, including the common stock and public warrants, were charged as a
direct reduction to Lucid's additional paid-in capital of the gross proceeds
remitted to Lucid from Churchill. The Company's $2.7 million transaction costs
allocable to liability-classified instruments measured at fair value, including
the private warrants, were charged to the condensed consolidated statements of
operations and comprehensive loss upon the Closing for the three and nine months
ended September 30, 2021.

Interest Income

Interest income of $24.4 million and $27.3 million, respectively, for the three
and nine months ended September 30, 2022, primarily consisted of interest, as
well as amortization and accretion of purchase premiums and discounts on our
investments of available-for-sale securities.

Interest 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 $7.5 million and $22.4 million, respectively, for
the three and nine months ended September 30, 2022 as compared to the same
periods in the prior year, primarily related to the 2026 Notes issued in
December 2021.

Other Income (Expense), net


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

Other income (expense), net increased by $0.4 million and $10.0 million,
respectively, during the three and nine months ended September 30, 2022 as
compared to the same periods in the prior year, primarily due to changes in
foreign currency exchange rates and dividend income from our investments.


Provision for Income Taxes

                                                 Three Months Ended                                                       Nine Months Ended
                                                    September 30,                                                           September 30,
(in thousands)                                 2022               2021           $ Change          % Change            2022               2021           $ Change          % Change
Provision for income taxes                     149                 22              127                    *nm          540                 31              509                    *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 $0.5 million,
respectively, for the three and nine months ended September 30, 2022 as compared
to the same periods in the prior year, primarily due to changes in taxable
income of our foreign operations.

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Liquidity and Capital Resources

Sources of Liquidity


As of September 30, 2022, Lucid had approximately $3.85 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 construction of AMP-2, (vi) expansion of retail
studios and service centers, and (vii) other initiatives related to the sale of
vehicles and/ or technology.

We anticipate our cumulative spending on capital expenditures to be
approximately $1.2 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. Our future capital expenditures may vary and will depend on
many factors including the timing and extent of spending and other growth
initiatives. We expect our operating expenses to increase in order to grow and
support the operations of a global automotive company targeting volumes in line
with Lucid's aspirations.

As of September 30, 2022, our total minimum lease payments are $486.3 million,
of which $7.3 million is due in the current fiscal year. We also have
non-cancellable long-term commitments of $291.2 million, primarily relating to
certain inventory component purchases. For details regarding these obligations,
refer to Note 14 "Leases" and Note 15 "Commitments and Contingencies".

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 September 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 support 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.
                                       47
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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
SIDF, a related party of Public Investment Fund ("PIF"), which is an affiliate
of Ayar Third Investment Company, the controlling stockholder of the Company
("Ayar"). Under the SIDF Loan Agreement, SIDF has committed to provide loans
(the "SIDF Loans") to Lucid LLC in an aggregate principal amount of up to SAR
5.19 billion (approximately $1.4 billion); provided that SIDF may reduce the
availability of SIDF Loans under the facility in certain circumstances. SIDF
Loans will be subject to repayment in semi-annual installments in amounts
ranging from SAR 25 million (approximately $6.7 million) to SAR 350 million
(approximately $93.2 million), commencing on April 3, 2026 and ending on
November 12, 2038. SIDF Loans are financing and will be used to finance certain
costs in connection with the development and construction of AMP-2. Lucid LLC
may repay SIDF Loans earlier than the maturity date without penalty. Obligations
under the SIDF Loan Agreement do not extend to the Company or any of its other
subsidiaries.

SIDF Loans will not bear interest. Instead, Lucid LLC will be required to pay
SIDF service fees, consisting of follow-up and technical evaluation fees,
ranging, in aggregate, from SAR 415 million (approximately $110.5 million) to
SAR 1.77 billion (approximately $471.1 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 September 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 agreements with MISA, a related party
of PIF, which is an affiliate of Ayar, pursuant to which MISA has agreed to
provide economic support for certain capital expenditures in connection with
Lucid LLC's on-going design and construction of AMP-2. The support by MISA are
subject to Lucid LLC's completion of certain milestones related to the
construction and operation of AMP-2. Following the commencement of construction,
if operations at the plant do not commence within 30 months, or if the agreed
scope of operations is not attained within 55 months, MISA may suspend
availability of subsequent support.

Pursuant to the agreement, MISA has the right to require Lucid LLC to transfer
the ownership of AMP-2 to MISA, at the fair market value thereof, minus an
amortized value of the support provided in the event of customary events of
default including abandonment or material and chronic low utilization of AMP-2.
Alternatively, Lucid LLC is entitled to avoid the transfer of the ownership of
AMP-2 by electing to pay such amortized value. The agreements will terminate on
the fifteenth anniversary of the commencement of completely-built-up ("CBU")
operations at AMP-2 at the latest.

During the three and nine months ended September 30, 2022, the Company received
support of SAR 366 million (approximately $97.3 million) in cash, of which
$70.7 million was recorded as deferred liability within other long-term
liabilities and $26.6 million was recorded as a deduction in calculating the
carrying amount of the related assets on the condensed consolidated balance
sheet. There are no unfulfilled conditions and contingencies attached to the
payments received.


                                       48
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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 a
related party of PIF, which is an affiliate of Ayar. The GIB Facility Agreement
provides for two committed revolving credit facilities in an aggregate principal
amount of SAR 1 billion (approximately $266.2 million). SAR $650 million
(approximately $173.0 million) under the GIB Facility Agreement is available as
bridge financing (the "Bridge Facility") of Lucid LLC's capital expenditures in
connection with AMP-2. The remaining SAR 350 million (approximately
$93.2 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 September 30, 2022, the Company had
outstanding borrowings of SAR 51 million (approximately $13.6 million) from the
Working Capital Facility, which was recorded within other current liabilities on
the condensed consolidated balance sheets. As of September 30, 2022, available
borrowings are SAR 650 million (approximately $173.0 million) and SAR
299 million (approximately $79.6 million) under the Bridge Facility and Working
Capital Facility, respectively. As of September 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 September 30, 2022, we were in
compliance with applicable covenants under the ABL Credit Facility.

As of September 30, 2022, we had no outstanding borrowings and $36.8 million
outstanding letters of credit under the ABL Credit Facility. Availability under
the ABL Credit Facility was $303.7 million as of September 30, 2022, after
giving effect to the borrowing base and the outstanding letters of credit.

We have generated significant losses from our operations as reflected in our
accumulated deficit of $6.9 billion and $6.1 billion as of September 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 of this Quarterly Report.
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Cash Flows


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

                                                                            Nine Months Ended
                                                                              September 30,
                                                                        2022                  2021
Cash used in operating activities                                  $ (1,577,743)         $  (745,401)
Cash used in investing activities                                    (3,289,021)            (299,294)
Cash (used in) provided by financing activities                        (165,566)           5,236,843

Net (decrease) increase in cash, cash equivalents, and restricted
cash

                                                               $ 

(5,032,330) $ 4,192,148

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 $832.3 million to $1,577.7
million during the nine months ended September 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 $308.4 million and an overall
increase in net operating assets and liabilities of $523.9 million. The change
in net operating assets and liabilities was mainly attributable to an increase
in inventory driven by planned production ramp-up, 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 $2,989.7 million to $3,289.0
million during the nine months ended September 30, 2022, compared to the same
period in the prior year, primarily attributable to purchases of investments of
$2,726.7 million during the nine months ended September 30, 2022 and an increase
in capital expenditures of $485.7 million, partially offset by proceeds from
maturities of investments of $125.4 million and capital expenditure support
received from MISA of $97.3 million during the nine months ended September 30,
2022.

Cash (Used in) 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 $165.6 million during the nine months
ended September 30, 2022, compared to $5,236.8 million of net cash provided by
financing activities for the same period in the prior year. The change was
primarily attributable to gross proceeds of approximately $4,439.2 million from
the Merger, proceeds from the issuance of Legacy Lucid Series E preferred stock
of $600.0 million, proceeds from the exercises of public warrants of $173.3
million, and proceeds from short-term insurance financing note of $41.9 million
during the nine months ended September 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 $196.4 million during the nine
months ended September 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
                                       50
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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.

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.

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