Lucid Group (LCID, Financial) is an EV company with the vision to build the best luxury EVs with top-of-the-line features and a game-changing range. It produces the all-electric Lucid Air model with a base price of $87,400. Lucid also designs and makes EV powertrains and battery systems in-house using its own equipment and factory.
Unfortunately, while it is a step ahead of many other EV startups given it produces working vehicles, it has yet to become profitable. The company recently reported second-quarter deliveries that sent its shares falling nearly 12%, closing at $7.16 on July 12.
Why Lucid is at risk right now
Lucid has gained attention for its innovative technology and luxurious electric cars, but it operates in a highly competitive market. Established automakers such as Tesla (TSLA, Financial) and GM (GM, Financial) are already producing and selling vast numbers of EVs due to superior financials. Lucid faces the challenge of capturing market share and establishing itself as a viable competitor against these well-established brands. Building and scaling up the production of EVs can be a complex and expensive process. Lucid's success relies on its ability to manufacture vehicles at scale while maintaining high-quality standards and meeting customer demand. Any delays or issues in production or delivery could impact on the company's reputation and financial performance.
Lucid requires significant capital to fund its operations, including research and development, production facilities, marketing and sales. While the company has secured investments and partnerships, including funding from Saudi Arabia's sovereign wealth fund, it still needs to generate sufficient revenue to cover its expenses and achieve profitability in the long term.
The automotive industry is rapidly evolving, with continuous advancements in technology, autonomous driving and batteries. Lucid needs to keep up with these technological developments to stay competitive.
It's important to note that while there are risks associated with Lucid or any other business, the company also has opportunities for growth and success. The EV market is expanding, and Lucid's focus on luxury, performance and technological innovation could position it well in the industry.
Second-quarter deliveries missed expectations
Lucid announced on July 12 that its second-quarter production and deliveries figures were disappointing. It made 2,173 vehicles in the second quarter and delivered just 1,404 of them. Both numbers were lower than in the first quarter, and the analyst consensus estimate was for second-quarter production of about 2,400 units and deliveries of 2,000, according to FactSet.
A miss on both production and deliveries from the prior quarter is surely very bad news. However, the company is optimistic it can produce 10,000 vehicles in 2023 and has some positive news that could act as a support for its shares, at least temporarily.
Lucid said it has begun shipments to the Kingdom of Saudi Arabia, which is a relatively untapped market for EVs. The Saudi Public Investment Fund is the majority shareholder of Lucid.
Lucid also said it has entered into a definitive agreement to establish a long-term strategic technology partnership with Aston Martin to accelerate the iconic British brand’s high-performance electrification strategy and long-term growth. Lucid will supply Aston Martin with its EV powertrain and battery systems in a business deal considered to have a value of more than $450 million.
Lucid has been unprofitable and is burning cash
Lucid has not yet revealed its full results for the second quarter, but it announced its first-quarter 2023 results back in May, and one of the highlights was that it ended the quarter with total liquidity of approximately $4.1 billion, which it believes "is sufficient to fund the company at least into Q2 of 2024,” according to Sherry House, Lucid’s chief financial officer.
I am concerned that this may not be enough considering the rising interest rate environment as the free cash flow trend is not only negative but also very poor. In 2022, Lucid reported free cash flow of -$3.29 billion, worse than the free cash flow of -$1.47 billion in 2021. The quarterly free cash flow trend is not good either, as over the past four quarters, Lucid has reported negative free cash flows that are getting deeper in the red.
In the first quarter of 2023, Lucid reported a net loss of $779.53 million, worse than the net loss of $472.65 million for the fourth quarter of 2022.
Takeaway
In a rising rate environment and with stiff competition, I do not see any compelling reason to be bullish on an unprofitable company that keeps missing expectations. The second-quarter results, to be released on Aug. 7, will be important for investors interested in the stock to keep an eye on, as any miss on key metrics could send the stock in a significant plunge.
