Lucid Group — a Newark, Calif.-based designer, maker, and seller of luxury EVs, EV powertrains, and EV batteries — delivered investors a beautiful PowerPoint presentation prior to its July 2021 SPAC merger.
Nearly two years later, Lucid’s developing picture is nowhere near as brilliant as planned. While it raised $3 billion in cash in May, second quarter 2023 deliveries fell short of analyst expectations.
What’s more, CEO Peter Rawlinson is optimistic about Lucid’s future products aimed at Tesla’s SUV, Model 3, and Model Y.
However, I see a fundamental problem: Lucid is trying to shift its strategy from making high-price luxury vehicles to effectively copying Tesla’s most popular vehicles.
Is there a compelling reason consumers should buy from Lucid rather than Tesla?
Since Lucid’s stock has plunged from its peak and its shares are heavily shorted, the answer could be “No.”
Unless Lucid can deliver more vehicles than investors expect for several consecutive quarters, short sellers have more room to profit.
Lucid’s Recent Disappointments
On July 12, Lucid stock lost about 12% of its value after reporting disappointing second quarter deliveries. This followed Lucid’s larger-than-expected first quarter loss amid fears of insufficient demand for its high priced EVs.
Here are Lucid’s low lights, according to CNBC:
- Second quarter deliveries fell 30% below expectations. Lucid delivered 1,404 Air luxury sedans, which sell for $92,900 before incentives, in the quarter — 596 units fewer than analysts polled by FactSet expected.
- Second quarter Air production dropped 6% from first quarter. Lucid produced 2,173 Airs in the period — 6% fewer than it produced in the first quarter.
- Will produce far fewer Airs in 2023 than customers pre-ordered. In February, Lucid told Wall Street analysts it would build between 10,000 and 14,000 Airs in 2023 — fewer than half its “over 28,000” reservations on hand.
It’s not all bad news. In June, Lucid announced it would receive some $230 million from Aston Martin and 3.7% of its stock in exchange for making EV powertrains for the storied British automaker. In May, Lucid raised $3 billion in cash — giving it enough cash to survive until mid-2025, Barron’s reported.
One analyst expressed concern that Lucid is out of step with the broader EV market. On July 12, Citi analyst Itay Michaeli told Dow Jones, the drop in Lucid’s stock price “is understandable given the magnitude of the [second-quarter] delivery miss and the widening spread between production and deliveries.”
As Michaeli wrote in a note, Air’s high price point contributed to its disappointing delivery report. He sees Lucid under increased pressure to deliver lower-priced EVs to compete with faster-growing rivals.
In my view, Lucid is falling behind Tesla — which reported an 83% rise in second quarter shipments and Rivian — which enjoyed 59% delivery growth in the second quarter, 15% above expectations.
In 2923’s first quarter, Lucid reported $149 million in revenue — 29% below expectations — and a $780 million net loss — nearly $700 million more than it lost the year before, CNBC reported.
Lucid ended the first quarter with about $3.4 billion in cash and about $700 million in available credit lines after burning through $1 billion in free cash flow during the quarter.
What Lucid Expected Prior to Its SPAC Merger
Lucid painted a bright picture for itself ahead of its SPAC merger. In July 2021, Lucid merged with a SPAC called Churchill Capital Corp IV.
A big part of that bright picture was its Lucid Air — which the company expected to exceed the range Tesla’s Model S. According to Lucid’s July 2021 investor presentation, the Air’s range would be 517 miles — about 26% more than that of the Model S.
Lucid’s production targets and revenue goals were ambitious. According to its July 2021 investor presentation, Lucid expected to produce 20,000 vehicles in 2022, 49,000 in 2023, and 251,000 in 2026. The EV-maker expected to generate $97 million in 2021 revenue — growing at a 198% compound annual rate to $23.8 billion by 2026.
Lucid has fallen way short of its expectations. In 2022, according to Inside EVs, it produced 7,180 vehicles — 64% below expectations. In 2023, its highest production forecast of 14,000 is 71% below the number it expected to build two years ago.
In 2021, Lucid was very excited about its future. According to CNBC, Rawlinson said the SPAC merger “secures Lucid’s financial runway through the end of 2022. We do have a very illustrious roster of blue-chip institutional investors but we’ve attracted so much interest from the retail sector as well — It’s a testament to the appeal of our product and our technology that we’ve enjoyed that position.”
Where Lucid Stock Goes Next
Lucid has been overly optimistic. Since peaking at about $58 a share in October 2021, its stock has lost 88% of its value. Meanwhile, investors are bearish on the company with 42% of its float is sold short, according to the Wall Street Journal.
Analysts are bullish about Lucid stock — seeing 25% appreciation potential. According to CNNMoney, eight analysts “offering 12-month price forecasts for Lucid Group have a median target of $9.”
Rawlinson intends to launch new products to compete with Tesla. In June, he told Finbold News, Lucid’s Gravity SUV is “going to be a seminal product – a seven-seat, three-row SUV, super practical.”
Rawlinson added, “After Gravity, we’re going to do [Tesla] Model 3 and Model Y competitors. We think around $50,000, maybe $48,000 – something like that. It’s too early to say, but that’s the vision,” noted Finbold News.
One independent expert is enthusiastic about the Lucid Air and sees it as too expensive for most consumers. According to JDPower’s Perry Stern, “The Lucid Air makes a grand statement with its elegant looks, luxurious and spacious cabin, intuitive, advanced technology, and driving characteristics that make you want to come up with a reason to hit the road. Its steep price makes it difficult for most consumers to consider buying.”
With Lucid already losing money, can it now afford to offer lower priced versions of what Tesla is currently selling?
Next month, Lucid will issue its second quarter 2023 financial results. If the EV-maker exceeds expectations and/or raises guidance, many of those short sellers will have to buy the stock to cover their positions — driving up the stock.
If Lucid again disappoints investors, those shorts will keep winning.
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