Share prices of electric vehicle manufacturer Lucid Group (LCID 1.17%) tumbled 13.8% on March 1 after the company reported worse-than-expected fourth-quarter and full-year 2021 results, and slashed its 2022 guidance.
The most jarring kernel of news was that Lucid reduced its 2022 production and delivery estimate from 20,000 units down to a range of 12,000 to 14,000 Lucid Air electric sedans.
Given the disappointing adjustment, should investors consider selling Lucid stock now, or take a patient approach and give Lucid the benefit of the doubt?
Image source: Lucid Group.
Some context
Until now, Lucid had given investors every reason to trust in the company's ability to execute on its goals. In 2021, it said it would go public and begin mass production. Sure enough, Lucid merged with a special purpose acquisition company (SPAC) in July, began production in September, and began deliveries in October.
During its third-quarter 2021 earnings call in mid-November, Lucid confirmed its full-year 2022 goal to produce and deliver 20,000 vehicles and its 2023 goal to produce and deliver 50,000 vehicles even in the face of mounting supply chain concerns. It also indicated progress on expanding manufacturing capacity in order to fill growing reservations, which increased from 13,000 in September to 17,000 in mid-November. In sum, Lucid hit the ground running and was on a path toward another banner year in 2022.
Fall from grace
The comments made during Lucid's Feb. 28 earnings call and the content presented in its investor presentation derailed its trajectory and plunged Lucid into an uphill battle to regain investor trust. Not only was Lucid's production guidance poor, but it also said that it had proudced only 400 vehicles and delivered 300 vehicles as of the end of February. Put another way, Lucid has failed to deliver the first wave of 520 custom-configured Lucid Air Dream Edition vehicles.
The biggest threat to Lucid is that it misses on its already lower guidance and further slashes guidance in the coming quarters. Lucid said that it expects the bulk of supply chain constraints to come in the next few months and heavily subside in the second half of the year. It was also encouraging to hear Lucid say that it isn't encountering any fundamental supply chain constraints (chips and batteries), but rather is facing supply chain challenges from only a handful of its 250 suppliers for largely cosmetic components like glass, carpets, etc.
Production and delivery challenges
Lucid has done a good job investing in talent so that it can build its powertrain and batteries in-house. However, with only four months left in the first half of the year, Lucid could quickly find itself treading water in the second half of 2022 in trying to hit its new production and delivery goal.
For the sake of argument, let's say that Lucid finishes the first half of the year with 2,000 deliveries. That would still leave 10,000 to 12,000 for the second half of the year, or roughly 2,000 deliveries per month. Lucid has the existing production capacity to achieve this target. But if unexpected delays persist, then it wouldn't be at all surprising to see Lucid finish 2022 with fewer than 10,000 deliveries. In sum, investors should not take the company's new production goal for granted, as Lucid's current production run rate isn't even close to making this goal attainable.
Lucid Air electric sedan interior. Image source: Lucid Group.
Consider a wait-and-see approach
Lucid has an incredible product, impressive technology, and a great management team. But it is getting absolutely crushed by short-term challenges such as higher component costs, supply chain issues, and higher shipping costs. Even if Lucid hits its 12,000 to 14,000 goal, it's going to come at a much higher cost than originally estimated. 2022's narrative has now shifted from a year of growth to a year of survival.
Although Lucid's stock price is below where it was in July when the company went public via a SPAC, this is still a $40 billion company that is years away from meaningful production, let alone profitability. That's a tall order for long-term investors to stomach. I still like Lucid as a long-term play in the EV space, but I wouldn't blame anyone for taking a wait-and-see approach until the electric car company hits or misses its new 2022 production goals.
