Should one Buy, Sell, or Maintain Positions in Lucid Group?
Lucid Enterprises (LCID shedding -3.03%) is a rising star in the electric vehicle (EV) arena that has captivated investors ever since its merger with a specialized acquisition company (SPAC) three years ago. Its luxury EVs offer an impressive driving range and the company aims to challenge heavyweights such as Tesla.
Despite Lucid's anticipated position in the electric vehicle market's future, its road to production has been far from smooth. Following a high of $57.75 per share in late 2021, Lucid's stock value has plummeted an alarming 95%, now trading at less than $3 per share.
If you're considering investing in this promising electric vehicle company, the following points should be taken into account.
Lucid sets sights on the EV market
Lucid Enterprises specializes in producing luxury EVs, targeting a more affluent demographic segment. Its objective is to establish itself as a high-end brand in the highly competitive automotive industry by delivering an exceptional driving experience.
One of Lucid's standout characteristics is its outstanding range. The flagship Lucid Air Pure, priced at $69,900, overcomes an impressive 420 miles and boasts an impressive 430 horsepower. For those yearning for more power, the Touring model, priced at $110,900, boasts 819 horsepower and an extraordinary 512-mile driving range.
Moreover, Lucid's rapid charging technology enables drivers to accrue 200 miles of range in merely 12 minutes, making it an attractive option for long-distance travel.
Lucid receives unwavering support from several sources. Since 2018, the Saudi Arabian Public Investment Fund has injected billions of dollars into the luxury EV manufacturer. At the end of the third quarter, Lucid had over $5 billion in liquidity, ensuring its financial stability through 2026.
In early November, Lucid introduced its long-awaited SUV model, the Lucid Gravity Grand Touring. The company is now accepting orders for the EV SUV, which retails at $94,900. Lucid began manufacturing this vehicle in December, which boasts an impressive 450-mile driving range.
Lucid enjoys solid backing from the Public Investment Fund and is making headway as it introduces new vehicles, potentially making it an appealing investment opportunity. Investors, however, should consider the company's financial situation before investing.
Lucid relies on investors for financial support
The automaker's progress has been challenging, and things haven't always gone according to plan. Lucid went public in 2021, expecting to produce and deliver 49,000 vehicles by 2023 and 90,000 by the present year.
Last year, the company produced 8,428 vehicles, delivering 6,001. Through this year, Lucid has delivered 7,142 vehicles, with 2,781 in the third quarter, representing a 91% increase compared to one year prior. The company predicts it will produce 9,000 vehicles this year.
Lucid has seen a gradual ramp-up in production, but a pressing concern for investors is the company's cash burn rate. Lucid's revenue through the first three quarters of the year surged by 31%, to $573 million. However, expenses have continued to skyrocket in comparison. This year, expenses have been approximately $2.9 billion. Lucid, being a pre-profit company, has a staggering operating loss of $2.3 billion for this period. The company incurred a similar loss during the same period last year.
Given the challenging position of an up-and-coming, pre-profit company like Lucid, external funding is crucial for its long-term success. Consequently, Lucid has had to seek funding from outside investors numerous times to keep its operations afloat. This includes equity offerings and investments from the Saudi Arabian Public Investment Fund.
In October, Lucid raised $719 million in capital through a public equity offering, selling 262.5 million shares at around $2.66 per share. The Saudi Arabian Public Investment Fund invested an additional $1 billion in Lucid, bringing its total investment in Lucid since 2018 to $8.9 billion. This move ensures Lucid has enough funding for a financial runway through 2026.
Since 2022, Lucid's outstanding shares have increased from 1.65 billion to 2.32 billion, or 40%, as the company frequently taps equity markets, diluting the value of existing shareholders' positions in the process.
Should you buy, hold, or sell Lucid stock?
Lucid Enterprises' luxury EVs push the boundaries of what EVs can achieve, and the company could potentially thrive from long-term trends favoring EVs. According to projections from the consulting firm PwC, the number of EVs in the U.S. could reach 27 million by 2030 and 92 million by 2040. If Lucid can find its footing and generate positive cash flows, it has the potential to grow rapidly alongside this market.
The company is taking steps to reduce expenses but has required additional funding through equity offerings and the Public Investment Fund to stay afloat. While Lucid has a cash runway through 2026, I'd like to see it make progress in improving its bottom-line results. Until then, investors should be cautious or opt to sell the stock until more tangible positive results are evident.
Despite Lucid Enterprises' promising future in the electric vehicle market, its high cash burn rate and reliance on external funding from investors, such as the Saudi Arabian Public Investment Fund, should be considered before making an investment decision.
If Lucid can successfully reduce its expenses and generate positive cash flows, its position in the growing EV market could lead to significant growth opportunities for investors.
