The fourth quarter and full year 2021 financial results Lucid Group (LCID -6.67%) is about to report will be its first reporting period including commercial production of its high-end, fully electric Air sedans. Lucid began shipping its initial vehicles in late October to much praise and anticipation.
The Air sedan models range in price from about $77,000 to $169,000 for the Air Dream Edition. Lucid touts its technological prowess, including a battery range of up to 520 miles. MotorTrend also named the Air its 2022 Car of the Year, which was a first for an initial product of a new automotive manufacturer. Investors have pushed the stock up and back down with little data to go on, but that will start to change from this upcoming financial report.
Image source: Lucid Group.
Undecided investors
Lucid has been generating excitement among investors even since before its public debut in July 2021. The stock more than doubled before ending 2021 up more than 40% as a public company. But as the realities of a high valuation -- including a market cap of more than $60 billion at the end of 2021 -- and the need to prove its ability to manufacture at scale set in, investors have knocked Lucid shares down by about 30% so far in 2022.
The recent downturn was also associated with the market sentiment that has turned investors away from more speculative growth names. Nothing has really changed related to the potential for the company that generated the early excitement. After it increases production of the Air sedan, Lucid plans to launch its Gravity SUV model late in 2023. Lucid has also said it plans to use its engineering and technology expertise for future growth opportunities in applications beyond its own manufactured vehicles, including into energy storage systems.
What to watch for
In the third-quarter report, CEO Peter Rawlinson said the company was confident they could achieve 20,000 units in 2022, but reaching that target could depend on avoiding supply chain disruptions. Investors will want to keep an eye out in the upcoming conference call for any changes around that guidance.
Additionally, the company has said it expects to enter the European and Middle East markets beginning in the first half of 2022 and then into China in 2023. This expansion is already somewhat built into the stock's valuation, so it will be important for investors to see what the company says about those plans in its quarterly update. A move into the Middle East would be the result of Lucid's strong ties to the Kingdom of Saudi Arabia. Saudi Arabia's sovereign wealth fund invested more than $1 billion in Lucid in 2018, helping to fund Lucid's initial manufacturing facility in Arizona.
It wouldn't be surprising to see the company say it is currently focused more on ramping up its initial Air production and working to gain manufacturing efficiencies. Though not a huge issue, Lucid just initiated its first vehicle recall, and growing pains are not unexpected. But anything more than a bit of a reset in its timeline for international expansion could constitute a warning for investors.
A case for both bulls and bears
Investors bullish on Lucid are betting on a story of promise and potential for both its products and the expected growth in EV demand. Lucid's Air seems to already have the attention of consumers as well as industry veterans. And the International Energy Agency predicts that global EV sales will grow from 3.1 million in 2020 to at least 25 million by 2030. It also believes that number could reach about 46 million with additional support for sustainability initiatives.
But those positive scenarios are why Lucid is already valued as richly as it is. Some investors don't want to commit funds without proof of the ability to successfully develop the business. Those with a bearish stance can point to many instances of failed businesses and the inability to grow profitably.
Lucid's upcoming report will be another important data point for both bulls and bears. Investors intent on owning Lucid stock should realize the risks of the story not playing out, or at least be content with giving it a long enough time period to do so.
