A Lucrative Monetization Avenue Opens up for Lucid Group as the Saudi PIF Bolsters the Middle East’s Largest Carbon Credit Market

Rohail Saleem
Lucid Group Saudi PIF
Image Source: Almuraba

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Lucid Group (NASDAQ:LCID) is about to see the full lucrative potential of being backed by the Saudi PIF, one of the world’s largest sovereign wealth funds. The company also stands to receive dividends from investing in Saudi Arabia, a country that is at a very nascent stage of pivoting toward climate-friendly policies.

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To wit, the Saudi PIF, in collaboration with the Kingdom’s Tadawul Group Holding Company, has now announced the establishment of a voluntary carbon market company, where the PIF will hold an 80 percent stake while the Tadawul Group will hold the residual 20 percent ownership. This new venture will facilitate carbon credit trading in the Kingdom and the wider region going forward. It will also assist in auctioning off one million tons of carbon credits at today’s 6th edition of the Future Investment Initiative (FII) in Riyadh, constituting the largest such auction to date globally.

So, how will this measure impact Lucid Group’s already-lucrative standing in the Kingdom? Well, EV manufacturers around the world receive carbon credits from competent authorities based on the volume of zero-emission vehicles manufactured and normalized by each model’s respective range. As we noted previously, Saudi Arabia recently awarded Lucid Group around $3 billion in incentives to establish a 155,000-units-per-year production facility in the Kingdom. The Saudis have also signed an agreement to purchase up to 100,000 electric vehicles from the company over the next ten years. Given the preponderance of petrochemical plants and crude oil refineries along with the other paraphernalia that render Saudi Arabia a global oil powerhouse, the Kingdom’s nascent carbon credit market is expected to remain supply deficient, paving the way for Lucid Group to start monetizing its carbon credits once the AMP-2 facility located in the King Abdullah Economic City (KAEC) becomes operational.

Bear in mind that Lucid Group’s AMP-1 facility in Casa Grande, Arizona, currently has a production capacity of 34,000 units per annum. The company is adding a second assembly line at the facility to handle the production of the Lucid Gravity SUV that is expected to launch in 2024. Once the upgrade is complete, the facility’s annual production capacity will increase to 90,000 vehicles per year.

A few days back, Lucid Group reported that it produced 2,282 new electric vehicles and delivered 1,398 units in the third quarter of 2022. For reference, the company had delivered just 679 units in Q2. The company also reiterated its earlier guidance of producing between 6,000 and 7,000 vehicles in the entire FY 2022.

As part of its increasing presence in Saudi Arabia, Lucid Group opened its first Studio in Riyadh this week. The retail space will showcase the company's Air EV and a "digitally oriented premium experience".

Saudi Arabia constitutes the largest auto market in the GCC, accounting for around half of all car imports in the region. In 2020, the Kingdom imported vehicles worth $11.2 billion. Saudi Arabia aims to cut this import volume in half as part of its Vision 2030 strategy by boosting local production. And it is here that Lucid Group’s first-mover advantage comes into play. While the Kingdom has been in talks with a number of auto manufacturers, Lucid Group is the only major Western EV player that has announced firm plans to establish a dedicated facility in Saudi Arabia so far.

Under the Saudi Green Initiative, which complements Saudi Arabia’s Vision 2030, the Kingdom plans to curtail carbon emissions by producing around half of the country’s electricity from renewable sources by the end of this decade. The Kingdom is also planting 50 billion trees across the region to combat land degradation. Saudi Arabia aims to become carbon net-zero by 2060.

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