There are more than a few electric vehicle companies that burst onto the scene over the past few years vying for a top spot in what will no doubt be a massive and years-long transition from combustion engines to electrified vehicles. Some EV start-ups barely had a working product, and simply tried to ride a wave of enthusiasm for EVs. But Lucid Group (LCID +0.12%) was one company that stood out among many others as a solid EV company with a viable product.
The company says it's on track to produce up to 7,000 vehicles in 2022 (it hasn't yet released its annual production figures), and its luxury EV sedan, the Air, has won accolades from MotorTrend. But while Lucid proved that it can produce vehicles and impress automotive enthusiasts, the company still faces some significant hurdles.
So where will Lucid be in the next few years? Let's take a closer look.
Image source: Lucid Group.
What's happening with Lucid right now
Lucid's share price is down 32% since it went public through a special purpose acquisition company (SPAC) in 2021. The massive drop came as the broader EV industry experienced setbacks, in addition to some company-specific hurdles.
First, Lucid has to manage rising EV material costs, which forced the company to increase the price of some versions of its Air sedan in mid-2022. More importantly, the rising costs are weighing down Lucid's bottom line. In the third quarter, the EV maker lost $670 million and only made $195.5 million in sales. Lucid recently raised additional money -- to the tune of $1.5 billion -- through a new round of stock sales, and more could be on the way.
Back in August, the company said it could raise up to $8 billion through stock offerings over the next few years. While the $1.5 billion in new cash (and the potential to raise more) will help the company in the short term, investors will need to keep an eye on how well Lucid uses that money to close the gap between its top and bottom lines.
In addition to its losses, Lucid also cut its 2022 production guidance twice last year, going from its original estimate of 20,000 vehicles down to a range of just 6,000 to 7,000. The company said it had to lower its production estimates because of "extraordinary supply chain and logistics challenges" that the company is encountering.
To be fair, other EV start-ups have had to cut their production goals recently as well, but Lucid's massive scaling back of its production target shows that the company is having a difficult time ramping up its operations nonetheless.
NASDAQ: LCID
Key Data Points
Where Lucid Group could be in the next three years
Making predictions is notoriously tricky, but based on what's happening with Lucid right now there are a few things that could happen with Lucid over the next three years.
First, the company will likely face increased prices for EV batteries as material costs rise. This will be felt by other EV makers as well, but as a fledgling start-up, rising costs for Lucid could make it harder to achieve profitability. Battery costs jumped 7% in 2022, and research from BloombergNEF estimates that they won't start falling again until 2024.
This could also potentially force Lucid to raise the price of its already expensive EV lineup (its cheapest version of the Air starts at $87,400). While Lucid isn't interested in selling inexpensive EVs, rising materials costs could coincide with a potential recession.
That brings up the next challenge for Lucid over the next three years: a possible U.S. recession that slows down EV demand. Some economists believe the U.S. will enter a recession this year, and any significant economic slowdown could hurt demand for Lucid's luxury EVs.
A recent KPMG survey of automotive executives found that 76% of auto executives are concerned that rising inflation and high interest rates will hurt their business in 2023 and slow the adoption of EVs over the next few years.
Image source: Lucid Group.
The U.S. could avoid a recession, of course, but even the fear of one could cause EV customers to delay making such an expensive purchase.
And finally, Lucid could continue to face vehicle production issues over the next few years. The company missed its original production guidance in both 2021 and 2022, and it has pushed back the launch date of its upcoming SUV -- called Gravity -- to 2024.
Even if the company makes improvements in its production and is able to ramp up delivery numbers, it's probably going to remain behind some of its other EV competitors considering its relatively slow start over the past two years.
This EV stock is not for the faint of heart
Is Lucid Group doomed? Of course not. If you look closely at any EV company right now, they're all reeling from high material costs, inflation, recession uncertainty, and supply chain issues.
But this is a particularly vulnerable time for Lucid as the young company tries to find its footing in the EV industry and deals with all of the headwinds mentioned above.
EV investors should be very cautious about buying Lucid right now as the company tries to overcome all of these challenges over the next few years. Adding to the risk is the fact that Lucid's stock has a price-to-sales ratio of 30 right now, making the stock relatively expensive compared to EV leader Tesla, which has a P/S ratio of 5.5.
