Lucid Group's (LCID 2.75%) stock plunged 14% on March 1 after the electric vehicle (EV) maker posted its fourth-quarter earnings report. Let's review the seven red flags and see if investors should be concerned.
1. A big revenue miss
Lucid generated $26.4 million in revenue in Q4, compared to just $3.6 million in revenue a year earlier. That big year-over-year jump occurred after Lucid started delivering its first Lucid Air sedans last October.
However, Lucid still broadly missed analysts' expectations by $33.5 million. Lucid delivered 125 sedans by the end of 2021, but that only represented less than a quarter of its initial batch of 520 "Dream" edition Air sedans. Analysts expected Lucid to ship more vehicles by the end of December.
Image source: Lucid Group.
2. Big production delays
Lucid said that it had delivered 300 vehicles to date as of the end of February. But it also reduced its production target for the Air to just 12,000 to 14,000 vehicles in 2022 compared to its prior target of 20,000 vehicles.
Lucid blamed that reduction on supply-chain challenges and the ongoing chip shortage. Unlike Tesla, which offset some of those headwinds by rewriting its software for more widely available chips, Lucid seemed to struggle just as much as traditional automakers.
Lucid also pushed back the upcoming launch of its Gravity SUV from 2023 to the first half of 2024. That delay raises questions regarding Lucid's ambitious long-term plans to deliver 500,000 vehicles by 2030.
On the bright side, Lucid's reservations hit 25,000 at the end of February, which could potentially generate $2.4 billion in revenues if fully fulfilled. That's a big jump from 17,000 last November and 13,000 last September.
3. More red ink
Lucid's net loss widened significantly year over year, from $297 million to $1.05 billion in Q4. Its net loss of $0.64 per share also broadly missed analysts' expectations by $0.29.
On an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis, Lucid's net loss still widened from $194 million to $300 million. Lucid previously predicted it would turn profitable on an adjusted EBITDA basis by 2024, but production delays for the Air and Gravity might force it to extend that timeline.
4. Rising debt levels
Lucid ended 2021 with $3.97 billion in total liabilities, compared to just $227 million a year earlier. That big increase in leverage, which mainly came from a big convertible stock offering, boosted its debt-to-equity ratio to 1.0.
That leverage might be manageable for a company with stable profits or narrowing losses, but Lucid plans to rack up even more losses for the foreseeable future. Therefore, investors should expect it to take on more debt over the next few years.
5. That proactive recall
In February, Lucid proactively recalled 203 Air sedans to address a potential defect in 1% of its vehicles. The problem, which Lucid pinned on an "improper assembly by a supplier," hasn't caused any safety issues yet, but it highlights how difficult it is for the company to ramp up its production.
6. Its hot valuation just got a lot hotter
At $25 per share, Lucid has a market cap of $41 billion. That's more than 1,500 times its revenue in 2021 -- but that valuation is extremely misleading because it didn't start shipping cars until Q4.
Lucid previously said it could generate about $2.2 billion in revenue in 2022 by delivering 20,000 vehicles. The stock still looks richly valued at 19 times that outdated estimate. However, Lucid's reduced delivery forecast implies it will probably only generate about $1.65 billion in revenues in 2022 -- so the stock now trades at roughly 25 times that estimate.
By comparison, Tesla, which delivered 936,222 vehicles in 2021, trades at just 11 times this year's projected sales. Therefore, Lucid's frothy valuation might limit its upside potential in this shaky market.
7. Interest rates and other macro headwinds
Lucid has always been a speculative investment, but inflation, rising interest rates, the Russian-Ukrainian war, and other macroeconomic shocks could make it an even riskier stock to own.
Inflation could reduce the value of Lucid's long-term projections, higher interest rates could boost its borrowing costs, and its supply-chain woes could drag on. A global recession could also curb the market's appetite for high-end luxury EVs.
Should you still invest in Lucid?
Lucid's bulls frequently claim the company will be the next Tesla. However, Tesla also established a first-mover advantage in the market, and it benefited from years of tax breaks and subsidies.
Lucid is a latecomer that is attempting to carve out a niche in a crowded market by selling pricier, longer-range EVs than Tesla. That strategy might pay off over the long run, but it's still far too early to tell if Lucid's stock is merely trading on its reservations or actual future sales.
Lucid's disappointing Q4 earnings report and guidance indicate it still faces a lot of growing pains. Investors should see if it starts meeting its delivery goals in 2022 before nibbling on its speculative stock.
