Rivian Automotive (RIVN -4.37%) and Lucid Group (LCID -1.16%) have taken the auto industry and the U.S. stock market by storm, but for different reasons. Industry watchers may admire Rivian and Lucid's impressive technology and their cool new electric vehicles (EVs), whereas investors may be smitten by the prospect of either company evolving into a major industry player over time.
Both companies have their advantages and weaknesses. But one thing that isn't as frequently discussed is management. On paper, Lucid has Rivian crushed in this department. Lucid's top brass is made up of executives from several leading tech companies and other automakers. But credentials aren't everything.
Rivian has Lucid beat in a subtler category. That category, in a nutshell, is authenticity and empathy. Here's why that's important for long-term investors.
Reading financial statements and earnings call transcripts is excellent for learning more about a company. But when a business is young and has negligible revenue and negative cash flow and earnings, it's more important than ever to listen to the conference calls and investor presentations.
Before Lucid merged with a SPAC called Churchill Capital IV in July, you could still buy its stock under the Churchill Capital IV ticker. And although Lucid didn't give quarterly earnings calls because it wasn't yet a public company, it would give occasional investor presentations. The two big ones were in May 2021 and July 2021.
Even back then, it was clear to see that Lucid's executives, led by CEO and CTO Peter Rawlinson, are flashy, confident, and highly ambitious.
This silver-tongued rhetoric sounds great when times are good and Lucid stock is within striking distance of a $100 billion market cap. But during lean years, as 2022 is certain to be, a gung-ho tone can sometimes come across as overconfident and even a bit insincere.
A fine line between confidence and arrogance
During Lucid's most recent conference call for Q4 and full-year 2021, the company reported much-lower-than-expected production and deliveries, delayed the release of the Lucid Gravity SUV until 2024, slashed 2022 delivery guidance from 20,000 vehicles to a range of 12,000 to 14,000 vehicles, and reported high spending that is likely to only increase from here. In sum, poor results and poor guidance.
Yet throughout the conference call, Lucid's management was a little too dismissive of these problems, shrugging off supply chain concerns since they weren't related to battery packs but instead to cosmetic components, carpets, and glass. Or by saying that the cash position was strong enough to outlast short-term challenges. That may be true, but at the end of the day Lucid needs to produce and deliver cars and start making money, or it's going to have to raise more cash in a tighter and higher-interest-rate business environment.
To be fair, Lucid already believes it makes the best electric sedan on the market and that it won't have trouble finding buyers. So if those two points are true and stay true for several years, then the company has a point that it just needs to get past this hiccup in the supply chain and then it'll be as good as gold. Lucid's technology is amazing, and the company has a lot going for it that could make it a long-term winner. It's just not doing itself any favors by assuming the race is won.
Addressing concerns head-on
Rivian's Q4 and full-year 2021 conference call was different from Lucid's. It sounded less like a marketing presentation and more like a battle plan.
Rivian said that it believes it could have produced and delivered 50,000 vehicles under normal circumstances but expects to only be able to produce and deliver 25,000 vehicles because of supply chain constraints. Instead of excessively blaming economic factors or suppliers for the situation, Rivian simply accepted the reality of the situation and got down to business.
Rivian CEO and founder RJ Scaringe spent a lot of time discussing short-term goals in addition to long-term goals to give analysts and listeners specific points to track for the rest of the year. For example, Rivian is planning on significantly ramping up production of its electric van, the EDV, in Q2 2022. It also discussed updates on its manufacturing expansions, why it is increasing spending in 2022, and how that will set it up for 2023 and 2024, and it gave tons of informative commentary on new technology such as its 800-volt architecture, dual and quad motor configurations, and software integrations.
Rising to the occasion
Neither electric car company can control macroeconomic factors. But they can control how they react to challenges and overcome them. Lucid gave a lot of bad news and discussed why its company is still amazing. Rivian gave a lot of bad news but discussed, in detail, what it was doing to stay proactive, make its products better, and become a better company.
Lucid downplayed threats of competition and ignored some major questions I was hoping it would answer on the call, such as the severity of the U.S. Securities and Exchange Commission subpoena, the extent of the Lucid Air recall, updates to 2023 production and delivery guidance, current manufacturing output, and estimated year-end capacity.
With Rivian, it felt as if the company understood the pressure it was under and the seriousness of the situation -- that cash burn is unsustainable and the company still has something to prove and needs to keep getting better or else it could fail.
Management is a critical part of every company. Good companies are able to adapt to good times and bad and be open and honest with investors. In times like these, it's important for management to be upfront about issues and reel in the sales rhetoric.