Share prices of Lucid Group (LCID 0.41%) tumbled 13.8% on March 1 in response to the company's fourth-quarter 2021 and full-year earnings report and 2022 guidance. Investors had a lot to be disappointed about, including the company's revised 2022 production goal of 12,000 to 14,000 vehicles compared to earlier estimates for 20,000 units.
The report and guidance were a net negative. But it would be a mistake to ignore some key short-term and long-term positives. Here are five green flags from Lucid's earnings report and how they fit into the Lucid investment thesis.
Image source: Lucid Group.
1. Growing reservations
As of Feb. 28, Lucid reported over 25,000 reservations across its Pure line of electric sedans, a 47% increase from the 17,000 reservations Lucid reported in mid-November. Lucid said that the reservations indicate potential revenue of over $2.4 billion, or $96,000 per vehicle. For context, consider that the lowest-priced trim of the Lucid Air -- the Air Pure -- goes for around $77,400, the Touring is $95,000, the Grand Touring is $139,000, and the Dream Edition (which is sold out) was $169,000 -- which shows that there's a nice blend of Lucid reservations across different trims.
What's more, Lucid said that it had received more pre-orders for the Grand Touring than the Touring, a sign that customers want their cars sooner rather than later and are willing to pay for a more expensive tier.
2. Air Pure remains on track for 2022
Lucid said that it had begun deliveries of the Grand Touring and remains on track to begin delivering the Touring and Pure later this year. Due to supply-chain constraints, Lucid has yet to deliver all of the pre-ordered Dream Edition vehicles but indicated it was more focused on building a brand and maintaining quality standards than rushing out deliveries.
The Pure's price tag is much more competitive to other luxury sedans than Lucid's more expensive trims. The vehicle's higher total addressable market will put Lucid to the test against a larger competition set. At the end of the company's earnings call, CEO and CTO Peter Rawlinson expressed excitement for the Pure and indicated that its successful rollout is one of the company's central priorities right now.
3. Supply-chain challenges should ease soon
Lucid said that its supply-chain challenges are concentrated in a handful of its 250 or so suppliers. What's more, Lucid isn't encountering supply-chain problems for anything fundamental, but rather for finished parts and trim parts such as glass, carpeting, and other cosmetic components. Given that Lucid's supply-chain headaches are due to commodities, not core technology, the company expects challenges to persist through the next few months but ease in the second half of the year. This is a much more bullish forecast than what Tesla and Ford gave in their respective Q4 and full-year 2021 earnings reports.
Lucid has invested a lot of money and time into its electrical and engineering teams. It designs most of its printed circuit boards in-house and builds its own battery packs and powertrain. Given its relatively low production volume and vertical integration, it makes sense that Lucid may be able to emerge from the bulk of supply-chain woes before other automakers.
Image source: Lucid Group.
4. Flush with cash
Lucid ended 2021 with $6.26 billion in cash on its balance sheet thanks to raising over $2 billion from convertible bonds at the end of last year. The company estimates 2022 capital expenditures of around $2 billion. Factoring in operating expenses, Lucid should have enough cash to fund its business in 2022 and most of 2023.
The company indicated it should have no problems raising additional cash from capital markets and governments as needed. Lucid's timing to raise cash from going public and from its bond offering was perfect in hindsight, considering today's rising interest rate environment.
5. Saudi Arabia's backing
Lucid announced that it had signed agreements with the Ministry of Investment of Saudi Arabia, the Saudi Industrial Development Fund, and the King Abdullah Economic City to build a factory in Saudi Arabia. The factory is expected to open in 2025 and produce 150,000 units per year. Lucid currently has an annual production capacity of 34,000 units at its Arizona manufacturing plant and is in the process of rolling out an expansion that will increase its manufacturing capacity to 90,000 units per year.
As of Dec. 31, Saudi Arabia's Public Investment Fund holds a 61.7% stake in Lucid stock. Saudi Arabia remains a stabilizing force for Lucid, both through its financial support and its market potential.
Proceed with caution
Lucid investors have every right to be disappointed in the company's now lower 2022 guidance and its plans to roll out the highly anticipated Gravity SUV in the first half of 2024 instead of 2023. Lucid's investment thesis is grounded in what the company could become in five to 10 years, not what it is today.
Despite the five green flags discussed, many investors may be best either holding the electric car stock in a diversified basket of EV stocks or taking a wait-and-see approach to Lucid stock to make sure the company can hit its 2022 goals before jumping in.
