Remember the '80s? If you do, you probably recall the Cola Wars that dominated Super Bowl commercials and other major TV events. While that battle has waned, a new one seems to be rising: one involving electric vehicles (EVs).
While Tesla (TSLA -0.37%) holds the pole position as the most recognizable luxury EV maker, Lucid Motors -- soon to merge with the SPAC Churchill Capital IV (CCIV) -- is racing ahead in its attempt to challenge the EV king of the road. The upstart manufacturer aired a commercial during the episode of Saturday Night Live that Tesla CEO Elon Musk hosted earlier this month. Besides potential customers, investors have also taken notice of Lucid, so let's look down the road to see what it expects over the next few years.
What will roll off the assembly line
While no drivers are now seeing any Lucid EVs next to them in traffic, the company expects to have vehicles on the road before 2022 begins. Assembly of the company's first production model, the Lucid Air, will occur at the newly built factory in Arizona in the second half of 2021. Management recently reported that the company has received more than 9,000 reservations for the Lucid Air, and it expects to deliver about 1,000 units of the luxury sedan to customers in North America by the end of the year; deliveries to customers in international markets will commence in 2022.
Over the next five years, Lucid foresees considerable growth in production, including the introduction of an SUV, Project Gravity, in 2023. With projected Air deliveries rising to 36,000 and Project Gravity deliveries of 12,000, Lucid expects to sell about 48,000 vehicles in 2023.
By 2026, however, management expects SUV deliveries of about 134,000 to outnumber Air deliveries (about 42,000). Similar to Tesla's approach, Lucid expects to transition from only selling luxury vehicles to also offering more-affordable models, which it expects to introduce in 2025. Growing from 7,000 in 2025 to 75,000 in 2026, sales of the more-affordable vehicles will help the company (presumably) sell 251,000 vehicles in 2026.
Looking for the financials in the crystal ball
In seeking to grow vehicle deliveries from less than 1,000 in 2021 to 251,000 five years later, management clearly anticipates considerable success in convincing customers to hop into its driver seats. Investors, however, are likely more interested in where the rubber meets the road: the company's financial projections.
|Revenue||$2.2 billion||$5.5 billion||$9.9 billion||$14 billion||$22.8 billion|
|Gross profit||$34 million||$1.1 billion||$2.1 billion||$3.1 billion||$5.3 billion|
|EBITDA (loss)||($1.1 billion)||($637 million)||$592 million||$1.7 billion||$2.9 billion|
|Free cash flow||($2.8 billion)||($3.3 billion)||($1.5 billion)||$321 million||$1.5 billion|
Based on the belief that it'll sell about 1,000 vehicles this year, Lucid expects to book $97 million on the top line. But with production ramping up next year, management believes revenue will grow considerably and continue to do so for the next five years.
It expects the company to consistently generate a gross profit, averaging about 22% from 2023 through 2026. To put this in perspective, consider that over the past five years, Tesla has reported an average gross margin of 19.7%. Profitability on an EBITDA basis, on the other hand, isn't expected to occur until 2024. If Lucid meets its revenue and EBITDA forecasts in 2026, it'll generate an EBITDA margin of about 12.7%, comparable to the 13% EBITDA margin that Tesla has reported on a trailing-12-month basis.
In terms of cash flow, Lucid expects that it will allocate $1.9 billion for capital expenditures (capex) in 2023 -- the highest amount over the next five years -- presumably to prepare for the production of its SUV that's planned for that year. Over the next several years, capex spending is expected to taper off, ending with the company spending $573 million on capex in 2026. Consequently, Lucid projects generating $1.52 billion in free cash flow in 2026. If we assume (again) that the company meets its revenue forecast, it will translate to a free cash flow margin of 6.7%, the same margin that Tesla has reported over the past 12 months.
Let's be clear about Lucid's prospects
After taking a look at management's forecasts for the next five years, it's no wonder that investors are excited about Lucid's prospects. With management espousing such an auspicious view of the future, does this mean that EV investors should drive off with an investment and park the stock in their portfolios? Not quite.
Competition continues to ramp up with upstart EV manufacturers as well as legacy automakers that are shifting gears and committing to more EV-heavy product lineups. In addition, the company will surely face some bumps in the road over the next few years -- challenges that could result in the company failing to meet its growth projections. Additionally, the fact that management has supplied the projected financial figures is critical to note. The investing landscape is littered with companies that have provided ambitious earnings forecasts to drive investor enthusiasm yet who have failed to achieved their own guidance. Therefore, investors should be circumspect about taking managment's projections at face value, considering an investment with caution and weighting the risks accordingly.