Predicting Lucid's Position in the Next 12 Months
Similar to numerous electric vehicle start-ups presently, Lucid Group (LCID 3.95%) is attempting to find its footing in a progressively cutthroat market. This company has garnered attention with its exceptional Air sedan, yet investors have shown little enthusiasm for its stock.
So, what can we anticipate for Lucid in the coming year? I believe the company is in for a rough ride, potentially facing the same manufacturing and funding challenges it currently grapples with. Here's why.
Lucid's Current Situation
Lucid recently announced its intention to raise additional funds with a public offering of 262 million shares, coupled with a corresponding investment by Saudi Arabia's Public Investment Fund (PIF). This move brings an extra $1.67 billion to the company for operational expenses.
Additional cash, especially for an EV start-up with heavy spending on vehicle production and development, is beneficial for the company's operations. This extra cash will help Lucid operate and manufacture vehicles until the end of 2025. However, it's not an encouraging sign that the company, which went public in 2019, is having to sell more shares to raise funds, resulting in dilution for existing shareholders.
The primary issue here is that Lucid's vehicle production is sluggish, and the company is bleeding money. In the third quarter (ending September 30), Lucid produced 1,805 vehicles, an increase of just 16% from the year before, generating $200 million in sales, up 45% year over year.
Given that production and sales are slow, it's no surprise that the company's losses are substantial, which they are. Lucid reported a net loss of $992 million in the quarter, significantly more than its loss of $631 million in the year-ago quarter. While Lucid's adjusted loss per share of $0.28 was better than Wall Street's consensus estimate of $0.30, the company's widening losses are a concern.
Lucid's Future Prospects
Lucid's management predicts producing only 9,000 vehicles in 2024 and has not provided estimates for 2025 production. Considering that producing 9,000 vehicles in 2024 would essentially be the same output as in 2023, it's not particularly impressive.
Lucid has begun taking orders for its new Gravity SUV, with production expected to commence later this year. Adding another vehicle to the lineup might help Lucid sell more cars, but I'm concerned about its high-end pricing strategy potentially hampering sales.
The Gravity starts at $79,900, and the Air starts at $69,900. A more affordable crossover SUV is not scheduled to hit the market until late 2026. Selling luxury vehicles to consumers would be beneficial if the company could make substantial profits from these sales. However, Lucid's losses have increased significantly instead.
I think the company could continue to face financial instability one year from now, even after its recent cash injection. It might require another lifeline from its Saudi investors if they are willing.
Lucid's operating loss increased to $770 million in the most recent quarter, up from $750 million in the year-ago quarter, despite the company's management claiming they implemented cost-cutting measures.
All of this indicates that Lucid's stock will likely continue its unimpressive trajectory over the next year. Its share price is down more than 70% since its IPO in 2019. Lucid may eventually figure out how to manufacture its vehicles more efficiently, but until then, investors might be better off investing elsewhere for the next year or more.
In light of Lucid's financial struggles, investors may be hesitant to put their money into the company's stock, as seen by its significant decrease in share price since its IPO. To sustain its operations and vehicle production, Lucid has resorted to selling additional shares, leading to dilution for existing shareholders.
The company's operating losses continue to rise, reaching $770 million in the most recent quarter, despite claims of implementing cost-cutting measures. As Lucid's future prospects appear uncertain, with slow production and sales rates, potential investors may choose to allocate their funds towards more financially stable ventures for the time being.
