Even the best companies report a bad quarter or two sometimes. But Lucid Group's (LCID -2.86%) Feb. 28 Q4 and full-year 2021 earnings report and conference call were particularly disappointing. After last week's sell-off, share prices of Lucid stock are now down over 60% from the high they set just a few months ago.
Long-term investors may prefer to turn a blind eye to a bad report, hold their nose, close their eyes, and hope for the best. But facing risks head-on provides a better strategy for avoiding further downside, and tells you what to look for in case Lucid turns things around. Here are 10 red flags from Lucid's earnings report that aren't meant to scare you, but rather inform you so you can plan around Lucid stock in a way that suits your risk tolerance and investment time horizon.
Image source: Lucid Group.
1. Paltry existing production and deliveries
Lucid began producing its Lucid Air Dream Edition electric sedan in September and delivering it in October. As of Feb. 28, Lucid has only produced 400 Lucid Airs, and delivered 300 of them.
2. Revised production and delivery guidance
Lucid's previous guidance called for 20,000 deliveries in 2022, which it just lowered to between 12,000 and 14,000 units. Yet even this range looks unattainable given Lucid is rolling cars off its assembly line at a snail's pace. The good news is that Lucid has over 25,000 reservations across the four Lucid Air trims. A high reservation count is a good sign that customers are interested in the car. The 25,000 reservations represent $2.4 billion in potential sales, which would be an incredible accomplishment for Lucid. However, the company needs to get cars off the line and into customers' hands to avoid testing their patience.
3. Unclear 2023 guidance
Lucid previously planned to produce and deliver 50,000 units in 2023. It also planned to complete its expansion for its AMP-1 manufacturing facility in 2023. The expansion would increase its current annual capacity from 34,000 units to 90,000 units. Lucid did not update investors on these two goals, but rather said that tooling installations were going well and manufacturing capacity could grow to 53,000 units by year-end 2023.
In addition to failing to tell investors about 2023 production or manufacturing guidance, Lucid didn't provide added color on its 2023 spending plans. Seeing as the company said it expects cash to last into 2023 and not through 2023, investors may be wondering if Lucid has enough cash to fund next year's growth. Even if it's a close call, Lucid will likely have to resort to the now-less-generous capital markets for dry powder.
4. Failure to complete Dream Edition deliveries
In late October, Lucid announced it began delivering 520 custom-configured Lucid Air Dream Edition vehicles -- a first edition roll-out, so to speak, to celebrate the vehicle's record 520-mile range. Lucid has yet to produce or deliver these cars. On its Q4 2021 earnings call, Lucid said that it was having trouble completing deliveries of the Dream Edition due to supply chain challenges.
5. Supply chain constraints
Lucid said that it is only experiencing supply chain problems with a handful of its suppliers on minor parts like glass and carpets, not fundamental components needed for its powertrain or battery packs. Therefore, Lucid expects supply chain problems to ease in the second half of 2022.
Lucid acknowledged that the high price tag of its vehicles merits a perfect finish and cosmetics. In this sense, a shard of fiberglass or an entire electric motor is all the same to Lucid if it prevents the company from rolling cars off its assembly line.
Lucid's MultiCore Boost Charger has A/C two-way charge power of 19.2 kw, D/C charge power of 300 kw/400 hp, and max voltage of 1,000 volts. Image source: Lucid Group.
6. Lucid Gravity SUV delays
The Lucid Gravity SUV is an exciting new product Lucid had previously said would begin production in 2023. Lucid has now pushed back that target to the first half of 2024.
When asked for the reason for the delay, CEO and CTO Peter Rawlinson said the following:
I just want to make it a better product. I'm really excited with the way it's developing. It's just going to be awesome. It's taken a few twists and turns in its development to make it even better than we had anticipated. So I'm super pumped and I think it needs -- deserves just a little bit longer. We also want to integrate a lot of the learnings of productionalization from Lucid Air into that program, have that healthy feedback loop of integrating those learnings.
It makes sense that Lucid would want to take what it learns from the Air and apply it to Gravity. But delaying production by a year raises the bar. Now expectations will be even higher for Gravity to be a knockout product. If it falls short, that could be a problem for Lucid's brand.
7. Rapid cash burn
Lucid finished the quarter with $6.26 billion in cash and plans to spend at least $2 billion in 2022 capital expenditures (capex). It said that it has enough cash to take it well into 2023. But given rising interest rates and the electric car stock's much lower price, Lucid may have a difficult time raising cash if it doesn't turn its business around.
8. Negative projected 2022 gross margin
In addition to higher capex, Lucid is experiencing higher freight and logistics costs. And although it plans to shift shipping from air to land and sea to save money, as well as move some functions in-house, it expects overall higher shipping and material costs to result in negative gross margins in 2022. Lucid also said that lead times for some components are so long that it has to pre-order a lot of things early, which results in higher inventory costs and accelerated cash burn. On the call, CFO Sherry House cited a recent example where she approved a purchase order that required a 72-week lead time.
Image source: Lucid Group.
9. Quality control concerns
A couple of weeks before the earnings call, Lucid announced it was recalling 203 Lucid Air sedans due to a minor defect. Lucid's procedures for fixing the issue appear to be sound. Rather, the red flag is that Lucid failed to mention the cost of the recalls, how it has addressed this concern with its suppliers, and whether it thinks future recalls are a threat.
Given Lucid's terrible existing production numbers, slashed guidance, and delays for delivering the Dream Edition, it would seem that Lucid is practically halting production to fix some issues. And if that's true, it would put its revised full-year production guidance for 12,000 to 14,000 units in jeopardy.
10. Questionable long-term projections
Lucid's medium-term projections previously called for $22 billion in 2026 revenue, gross profit of over $5.2 billion, and 250,000 units of production. But given the U.S. Securities and Exchange Commission probe, which cited concerns regarding "certain projections and statements," Lucid could be dissuaded from providing guidance that isn't grounded in material fact.
Lucid is losing some of its luster
Lucid has the longest range, highest voltage, and fastest charging EV on the market today. The company is bursting with potential, but is already testing investor patience. The red flags discussed aren't a nail in the coffin by any means. But they sure make it harder to justify Lucid's already high $40 billion market cap.
