Lucid (LCID -3.92%) and Faraday Future (FFIE -6.21%) are both electric vehicle (EV) makers that went public by merging with special purpose acquisition companies (SPACs) in 2021. Both companies initially impressed investors with their rosy long-term projections, but their stocks collapsed after they failed to meet their early production targets.
Rising interest rates also made the two unprofitable EV makers even less appealing. Could either of these out-of-favor stocks make a comeback this year? Let's review their broken promises, turnaround plans, and valuations to decide.
Image source: Lucid.
What happened to Lucid?
Many of Lucid's early investors compared it to Tesla (TSLA 1.32%) for three reasons: Its CEO and CTO, Peter Rawlinson, was once Tesla's chief vehicle engineer; the top-tier Dream edition of its Lucid Air sedan could travel about 100 miles farther than Tesla's Model S Long Range on a single charge; and it targeted the same affluent EV buyers as Tesla.
Prior to its SPAC-backed debut, Lucid claimed it could produce 20,000 vehicles in 2022. However, the company reduced that target to 12,000-14,000 vehicles last February and halved it again to 6,000-7,000 vehicles last August as it grappled with supply chain issues. Eventually, it topped that guidance by producing 7,180 vehicles in 2022.
Lucid won't reveal its revenue or total number of reservations until it posts its fourth-quarter earnings report on Feb. 22. But we already know it ended the third quarter of 2022 with about 34,000 reservations, compared to its 37,000 reservations in the second quarter. Those cancellations suggest that Lucid's customers are tired of waiting.
Lucid's Arizona plant can produce 34,000 vehicles annually. By 2023, it expects an expansion of that plant to boost that figure to 90,000 vehicles to support the launch of its next vehicle, the Gravity SUV, in 2024. With the recent backing of Saudi Arabian investors, Lucid believes it can open more plants and produce a whopping 500,000 vehicles in 2025.
But for now, Lucid remains on shaky ground. For 2022, analysts expect it to generate just $722 million in revenue while racking up a net loss of $1.78 billion. In 2023, they expect it to generate $2.59 billion in revenue, but its net loss to widen to $2.16 billion. Based on those forecasts and Lucid's enterprise value of $15.7 billion, its stock still doesn't look like a screaming bargain at 6 times its 2023 sales.
At the end of the third quarter, Lucid predicted its liquidity could last through "at least" the end of 2023. That time limit was likely extended significantly by its $1.5 billion stock offering (mainly for its Saudi Arabian backers) in December. That puts it on firmer financial footing than other SPAC-backed EV makers, like Faraday.
What happened to Faraday Future?
Faraday initially told its investors it would start shipping its first vehicle, the FF 91 Futurist SUV, in the first quarter of 2022. Unfortunately, it missed that deadline and hasn't delivered a single vehicle yet. Last December, it told investors it would finally start shipping its first vehicles in March 2023.
But after so many delays, investors don't seem to have much faith it will roll out even one vehicle before it goes bankrupt. It only had $22.5 million in cash left at the end of last November, compared to $32 million at the end of the third quarter. And its new CEO, XF Chen, admitted it would need to secure $150-$170 million in fresh funds to launch the FF 91.
If Faraday somehow secures those funds, its debt-to-equity ratio would rise to about 1.7. By comparison, Lucid ended the third quarter of 2022 with a debt-to-equity ratio of 1.1. Faraday isn't generating any meaningful revenue yet, so it's betting everything on a debt-driven launch for the FF 91 in the first half of 2023.
But there simply isn't much pent-up demand for Faraday's pricey SUVs. As of Nov. 17, 2022, it had only received 369 fully refundable preorders for the FF 91. Based on the FF 91's starting price of $180,000, those preorders would only generate about $66 million in potential revenue. That also marks a drop from its 399 preorders at the end of the second quarter.
Analysts expect Faraday to post a net loss of $478 million in 2022. In 2023, they expect it to generate $149 million in revenue -- assuming its orders accelerate significantly -- with a narrower net loss of $349 million. But those ugly numbers would still represent a best-case scenario for Faraday. A far more likely scenario is that it falls short of securing enough funding, fails to ship the FF 91, and simply goes bankrupt. That's why its stock still isn't cheap at 1.5 times its 2023 sales.
The obvious winner: Lucid
Lucid faces a lot of near-term challenges, but it's already produced thousands of vehicles and still has a healthy backlog of orders. As for Faraday, there's no guarantee it can actually deliver a single vehicle before it goes bankrupt. Lucid's stock isn't cheap relative to its near-term growth yet, but it could be a bargain if it actually produces half a million vehicles annually by 2025. It's a highly speculative stock, but it's a lot more promising than Faraday.
