Lucid Group (LCID 0.41%) reported a slew of disappointing news on Feb. 28 during its fourth-quarter and full-year 2021 earnings call that has sent its stock tumbling to multi-month lows. Headlining the carnage was a revised 2022 production goal, which is now 12,000 to 14,000 units compared to earlier estimates for 20,000 units.
However, Lucid also reported some shocking financial results and guidance, such as $750 million in total 2021 research and development (R&D) costs and an estimated $2 billion in 2022 capital expenditures (capex). Let's break down Lucid's growth plans to determine if the electric vehicle (EV) company's spending is out of control.
Image source: Lucid Group.
A highly unprofitable year
Lucid reported just $26.4 million in Q4 2021 revenue, which was dwarfed by the following costs:
- Q4 cost of revenues of $151.5 million.
- A $48.9 million Q4 impairment charge related to the value of inventories less their cost to sell.
- A $583 million non-cash expense due to the market-to-market gain on private warrants.
- $197 million in Q4 sales, general, and administrative (SG&A) expenses.
- $151 million in stock-based compensation.
Lucid lost $2.58 billion in 2021, not to mention it shelled out over half a billion dollars in stock-based compensation. Lucid is quickly proving that its ambitions will come at a steep price, both in the cost of building its cars and its generously paid workforce.
Image source: Lucid Group.
Ramping up spending
Lucid spent $421 million on 2021 capex, which was lower than the $460 million it spent in 2020. However, Lucid said it is guiding for $2 billion in 2022 capex, representing a near-fivefold increase.
On the surface, it seems irresponsible that Lucid would deplete its $6.26-billion cash position this quickly, especially given how expensive it is to procure components, manufacture, and deliver cars right now. But digging into the details, we quickly find that Lucid's spending makes more sense.
In its July 2021 presentation, Lucid guided for around $1.3 billion in 2022 capex. It planned to spend $900 million on capex in 2021 but shifted $479 million of that spending to 2022, which makes the year-over-year comparison look more dramatic than it actually is.
Additionally, Lucid said that it was moving $350 million in planned capex from 2025 and 2026 to earlier years, which would increase annual spending between 2021 and 2024 by 6% to 7%. In sum, Lucid's spending plans are in line with its prior estimates.
An expensive but potentially worthwhile strategy
In terms of what this money is going toward, Lucid said that it is focused on expanding its manufacturing capacity from 34,000 units to 53,000 by year-end 2023 and then 90,000 once its phase-two expansion is complete. It's also spending money on improving its technology, opening new showrooms and service centers, rolling out lower-priced trims of the Lucid Air, and investing in developing its Gravity SUV, which is expected to begin deliveries in the first half of 2024.
Lucid said that it has enough cash to fund its operations well into 2023. The company assured investors that it has a lot of cash and expects it will be able to easily raise cash via capital markets or governments as needed. The spending may seem high, but it could ultimately prove worthwhile, so Lucid maintains its industry-leading technological advantage over the competition.
The Lucid Air Dream Edition has the longest range, the highest voltage, and the fastest charging of any electric sedan. Lucid's lower-priced Air tiers don't have quite the same range or souped-up battery packs. But they are still expected to rival any existing models, including those made by Tesla.
Challenges with future cash raises
Lucid's cash burn, namely its SG&A expenses and stock-based compensation, is a red flag that's worth monitoring as Lucid embarks on what is expected to be a very difficult year. Investors should monitor Lucid's cash burn in the coming quarters to ensure the company has enough cash leftover for 2023.
Lucid landed a timely convertible bond raise when its stock price was above $50 per share. Given that share prices of the electric car stock are now a much lower $25 per share or so, Lucid could have a harder time raising cash from equity markets as well as bond markets if interest rates remain high.
