What happened
Shares of luxury electric vehicle (EV) maker Lucid Group (LCID 5.12%) turned into a one-car pileup Monday morning, falling 8% through 10:30 a.m. ET after Barron's reported over the weekend on apparent defects in the cars that owners say can turn the $150,000 EV into a "5,000 pound brick."
NASDAQ: LCID
Key Data Points
So what
Barron's cites "dozens of complaints" about Lucid's marquee Lucid Air luxury electric sedan -- which may not sound like a lot, but for a company that's only sold 2,500 units so far, even just a few dozen complaints would imply a 1% failure rate.
According to the reports, Lucid Air may be prone to software bugs in its display screens, driving forward when put in reverse, or even losing power entirely in the middle of the road. Lucid has apparently been replacing faulty car components as complaints are made -- everything from bad electrical components to entire batteries. Details are scanty, however, and mostly apocryphal from "self-described" (but unconfirmed) owners. Unfortunately, it's hard to confirm the veracity of these complaints, and Lucid is not commenting either way.
What is clear and confirmed, however, is that as complaints mount, Lucid's order book appears to be rolling in reverse. Instead of preorders growing in advance of Lucid's production, Barron's reports that cancellations subtracted 8% from total preorders in September, and Lucid now has an order book of only 34,000 cars waiting to be built.
Now what
The good news for Lucid is that, after cutting its production forecast to about 6,500 units this year, Lucid is hoping to produce 34,000 units in 2023. That should be enough to quickly satisfy the remaining customer demand, which should help to boost the company's popularity -- if the glitches that are prompting customer complaints can be fixed quickly.
The bad news is that if Lucid fails to fix what ails it, there's a risk that the National Highway Traffic Safety Administration will force the company to recall the 2,500 cars it has already sold -- hurting future sales of the Lucid Air, and probably doing further damage to the stock price in the process.
Given that Lucid only has $3.3 billion in cash on hand (with $2.3 billion in debt), that it's burning cash at the rate of $2.8 billion a year, and that this cash burn rate is accelerating, Lucid will probably need to raise more cash within the next 12 months -- and a falling stock price implies it would need to sell even more shares to raise that cash than it would have needed to sell before this bad news on potential production defects appeared.
Things are not looking good for Lucid right now, and investors selling the stock today have good reason to worry.
