Lucid Group (LCID -1.72%) posted its first-quarter earnings report on May 5. The electric vehicle (EV) maker generated $57.7 million in revenue from 360 vehicle deliveries, which beat analysts' expectations by $2.1 million. It only generated $330,000 in revenues in the prior-year quarter, which ended before it started its first shipments last October.
Lucid's operating loss widened from $298.8 million to $597.5 million, but its net loss narrowed from $2.92 billion (including a $2.17 billion payment related to its preferred stock) to $81.3 million. That trickled down to a net loss of $0.05 per share, which beat analysts' estimates by $0.29.
Lucid's headline numbers looked decent, but its stock stumbled following the report and remains down more than 50% this year. Should investors accumulate some shares of this fledgling EV maker in this difficult market?
Aiming higher than Tesla
Lucid's CEO and CTO Peter Rawlinson was once Tesla's (TSLA -1.15%) chief vehicle engineer, but his company targets a higher-end market than Tesla, with pricier vehicles that can travel longer distances.
Lucid's debut vehicle, the Air sedan, comes in three flavors: Pure, Touring, and Grand Touring. Following a recent price hike of $10,000 to $15,000 (which goes into effect on June 1 for new reservations), the base prices of those three models will be $89,050, $109,050, and $155,650, respectively.
For reference, the base models of Tesla's vehicles cost between $48,000 (the Model 3) and $115,000 (the Model X). In an investor presentation last year, Lucid boldly declared that it was a "post-luxury" brand, while Tesla was an "innovative but not luxury" brand.
Lucid believes it can justify its higher price tag with its longer range. The Air can travel up to 520 miles on a single charge -- which beats Tesla's longest-range vehicle, the Model S Long Range, by more than 100 miles.
Trading on reservations instead of actual sales
Lucid has only delivered 485 vehicles (125 in 2021 and 360 in the first quarter of 2022) since last October. It also issued a voluntary recall for 203 vehicles earlier this year to fix a potential suspension issue.
Last year, Lucid repeatedly claimed it could deliver 20,000 vehicles in 2022. But in February, it reduced that target to 12,000 to 14,000 vehicles. It reiterated that goal during its first-quarter earnings report and said its total number of reservations had climbed to 30,000 -- compared to 25,000 at the end of February, 17,000 last November, and 13,000 last September.
That soaring demand is encouraging, and Lucid expects those 30,000 reservations to eventually generate $2.9 billion in potential sales. It already has the production capacity to hit that target -- its AMP-1 plant in Arizona can produce 34,000 vehicles annually, and the facility's Phase 2 expansion will boost its capacity to 90,000 vehicles by 2023.
However, Lucid remains highly exposed to the ongoing chip shortages and supply chain headwinds rippling through the automotive sector. As a smaller automaker, Lucid also lacks the scale and clout to secure cheaper components and hasn't been reprogramming its software for different types of chips, as Tesla has done, to navigate the chip shortage.
With a market cap of $30 billion, Lucid is valued at 23 times analysts' expectations of $1.3 billion in sales this year. Tesla trades at just 10 times this year's sales, and it's on much firmer ground because it already delivered more than 936,000 vehicles last year. In other words, investors are still paying a very high premium for Lucid -- and that high valuation is pinned to its reservations and production targets instead of its actual sales.
Does Lucid deserve that premium valuation?
Lucid believes it can ship 500,000 vehicles annually by 2030 as it rolls out two new vehicles (the Gravity SUV and a yet-to-be-named model) and expands overseas. It also expects to generate positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by 2024.
That rosy outlook suggests Lucid might evolve into the next Tesla, but it lacks Tesla's early mover's advantage. The EV market is much more saturated than it was a decade ago, and Lucid could struggle to expand as the macro and competitive challenges squeeze out the smaller players.
Lucid ended the first quarter with a manageable debt-to-equity ratio of 0.9, but that leverage will inevitably rise as it expands. Securing fresh funds at reasonable rates could become increasingly difficult as interest rates rise.
Lucid is too risky to own right now
Lucid is building the foundations of a promising business, but its growth is still too speculative, its stock is too expensive, and it will bleed red ink for the foreseeable future. Those three weaknesses make it a difficult stock to own as inflation and rising interest rates reset the tech sector's valuations.
If Lucid's stock gets cut in half again, I'd consider picking up a few shares. But at over 20 times this year's sales, it's simply too hot to handle right now.