Electric vehicle (EV) start-ups have been seen as appealing investment opportunities as the transition from gasoline vehicles accelerates. Lucid Group went public in mid-2021 through a SPAC merger, but the expected growth has not materialized as anticipated. The company has struggled with vehicle development and deliveries, with market uncertainties raising concerns about the viability of the EV transition. The stock has lost more than 90% of its value from its peak, raising questions about the company’s future.
When Lucid initially went public, it managed to capture significant investor interest due to its potential in the burgeoning EV market. However, like many other early-stage EV companies, it has faced significant hurdles in scaling up production and achieving sustainable profitability. In contrast to earlier periods when investor sentiment was more optimistic, current market conditions have led to increased scrutiny and skepticism about the company’s long-term viability. This has been further exacerbated by macroeconomic factors and increased competition in the EV sector.
Lucid continues to grapple with the challenge of ramping up vehicle production to become profitable before its cash reserves are depleted. The company has $3.9 billion in cash, with an additional $1.5 billion from Saudi Arabia’s Public Investment Fund (PIF), securing its operations for approximately 18 months. However, long-term success depends on stopping the cash burn, despite recent positive investor sentiment.
Production and Financial Hurdles
The ongoing cash burn is a significant concern for Lucid’s long-term stock value. While the company can raise funds through debt or diluting shares, these options negatively impact shareholders. If Saudi Arabia’s PIF, which has invested $7 billion in Lucid, decides to stop funding, Lucid’s survival could be at risk. Thus, investor gains might be limited even if the company eventually thrives.
Lucid is among the EV stocks that carry significant risk, with ongoing dilution and the potential loss of Saudi Arabia’s support being major worries. While the company claims superior technology and appealing vehicle designs, it lags behind industry leaders like Tesla (NASDAQ:TSLA) in terms of production. Even if Lucid survives, achieving the long-term growth needed for substantial returns remains uncertain, making it a risky investment.
Lucid CEO’s Optimism
Lucid CEO Peter Rawlinson has pushed for innovation with diverse features in their car launches. The Lucid Gravity SUV, currently in the verification phase, follows the Air Sedan, known for its impressive range of over 500 miles on a single charge. Despite its high initial price, the more affordable Air Pure, with 420 miles of range, could attract cost-conscious consumers.
Lucid delivered 2,394 vehicles in Q2, marking a 70% increase from the previous year. The company aims for 9,000 deliveries by year-end, with revenue rising 33% year-over-year to $200.5 million. However, operational losses of $1.5 billion for the first half of the year remain a concern. Although net cash used in operations has decreased from $1.5 billion to $1 billion, the road to profitability is still challenging.
Lucid’s ability to market its vehicles appropriately and gain traction from word-of-mouth reviews may determine its success. Much like Tesla and Rivian, which benefited from strong grassroots support, Lucid’s future depends on positive consumer trends and secular growth trends in the EV market. While there are reasons for optimism, investor perceptions of the company beyond its products will be crucial.
Historically, the EV market has seen many promising start-ups fail, such as Fisker. Lucid’s significant cash reserves and Saudi backing provide some security, but production issues and potential withdrawal of funding pose risks. The likelihood of bankruptcy is difficult to predict, but the company’s premium products and economic indicators suggest a cautious approach for investors.
