Lucid eyes licensing business as deliveries underwhelm
Management emphasises affordability of powertrain tech as high vehicle price still weighs on demand
California EV start-up Lucid is the latest automaker to throttle back EV production guidance and report fewer-than-expected vehicle deliveries. But its management is bullish on the potential to monetise the company’s technology via licensing business.
In the third quarter Lucid generated revenue of $137.8mn, a quarter-on-quarter decline of 9pc, which CFO Sherry House say is “largely driven by a change in product mix”. Cost of revenue was approximately $469.7mn for the quarter.
All in all, Lucid reports a Q3 Ebitda loss of $624.1mn, improved from a loss of $710.3mn from the second quarter. The losses are no surprise, as the company has not yet reached scale and is not expected to reach profitability until 2024 at the earliest.
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But disappointing delivery numbers — which led management to cut back production guidance for the year — come as more of a blow.
“We decided to prudently align our production with deliveries, and we are adjusting our production outlook to a range of 8,000 to 8,500, down from more than 10,000,” says CEO Peter Rawlinson.
And the company did just that by delivering 1,457 vehicles in the third quarter out of 1,550 that were produced. But Rawlinson hastens to add that this production figure “does not include over 700 vehicles that were in transit to Saudi Arabia”.
Lucid’s manufacturing process at its Saudi Arabia plant is one of vehicle “reassembly” of cars partly built at its Arizona plant. And while Rawlinson acknowledges these 700 vehicles “were manufactured in Q3”, he adds that “they will only be counted towards production upon final assembly.”
Modest delivery numbers are repeated in Saudi Arabia too. “We had hoped to deliver more vehicles in Saudi Arabia in the third quarter. However, the scale-up time has taken a little longer than estimated,” says House.
And management emphasises that production has not been the problem for Lucid, but rather that demand is lagging.
“I want to make clear that production is not our bottleneck. But rather we are taking a prudent approach to inventory management and working capital to better align with deliveries.
“We recognise that there are forces that are out of our control, and that some are not. We are navigating an uneven macro environment that is also affecting many others in the industry,” Rawlinson says.
And this environment is one in which even market leader Tesla has bemoaned the effect of high interest rates on EV affordability, while legacy US players Ford and GM have pushed back production goals and deferred investment.
As automakers across the board struggle to produce profitable EVs, Lucid’s belief in an ability to generate revenue from a licensing business model for its powertrain technology appear to grow.
Nor is the firm alone in thinking it could benefit. “The idea of licensing powertrain technology seems like it should be becoming more and more appealing to the industry at large as everybody is struggling to get these EVs launched profitably,” notes Bank of America analyst John Murphy.
“Some in the market are talking about the potential for a reduction in EV investments by other OEMs. Now, whilst I urge the industry to accelerate the transition to sustainable transportation, nonetheless, if this were to come to bear, I believe that Lucid would be in a prodigious position to benefit through our technology licensing business,” says Rawlinson.
“People are starting to look at the portfolio they have of ICE products and EV, and you hear some hinting as to possible pull back a bit on EV,” agrees House. “If that were to be the case — and we are not saying that it is — we do think that us having this technology licensing programme puts us in an advantaged position. We can possibly help some of these OEMs as a partner.”
Rawlinson believes Lucid is uniquely placed to license its technology, since the quality and performance of its powertrain has not been the limiting factor to its vehicle deliveries. Lucid’s deal to supply sportscar maker Aston Martin with its powertrain tech could be seen as evidence of this attractiveness — albeit with the caveat that the UK firm’s second-largest shareholder is Saudi Arabian wealth fund the PIF, which happens to also be Lucid’s largest backer.
But there is genuine external belief in Lucid’s tech. “That is why [its] vehicles are meant to be more expensive. They are meant to be better and, to be clear, they have the best performance out of any passenger vehicle out there today,” says Cantor Fitzgerald analyst Andres Sheppard. “Technology-wise, they are second to none.”
“It is relatively straightforward to do an average, okay EV, because you just buy the parts of the shelf. But that is going to be unacceptable and is already. And I think it is such a recognition that we got something very special with our technology,” Rawlinson says.
The CEO specifically mentions the benefits that Lucid’s powertrain could bring OEMs in terms of battery weight – and therefore cost – all while not sacrificing range. “When you overlay the true power of efficiency of our drive units and our whole system, it means you can go further with less battery.”
Economies of scale
Rawlinson is also confident that, even though Lucid suffers from demand problems owing to its high vehicle prices, the same concerns would not affect any such licensing business. While the question may still remain that if Lucid’s technology constrains it from making affordable EVs, why it might help others with EV economics, Rawlinson hints at it being a numbers game.
Its “technology was designed from the outset for mass manufacturability”, he says, suggesting that making a lot more vehicles would bring costs down.
“We still have not got the message out just how affordable our technology is in its own right,” Rawlinson concludes.