Shares of Lucid Group (LCID 0.41%) dropped 9% in after-hours trading on Feb. 22 after the company posted its fourth-quarter earnings report. Revenue for the maker of luxury electric vehicles (EVs) surged nearly tenfold year over year to $258 million, while its net loss narrowed from $1.05 billion to $473 million.
Lucid produced 7,180 vehicles for the full year, which surpassed its guidance of 6,000 to 7,000 vehicles, but it only delivered 4,369 of them. Its 1,932 deliveries in the fourth quarter also missed the consensus forecast and caused its quarterly revenue to come in $16 million shy of analysts' expectations.
The Lucid Air sedan. Image source: Lucid.
Lucid still had a backlog of over 28,000 outstanding reservations as of Feb. 21, which could potentially generate sales of about $2.7 billion if all those orders are filled, but that represented its second consecutive decline from its 34,000 reservations in the third quarter and 37,000 in the second quarter.
That total doesn't include the Saudi Arabian government's plan to purchase 100,000 vehicles from Lucid over the following decade.
Lucid's slower-than-expected deliveries and sequential loss of reservations sparked its ugly post-earnings sell-off. But should contrarian investors still pick up some shares of this out-of-favor EV maker as a long-term play?
Lucid expects its growth to accelerate in 2023
Last year was rough for Lucid. After initially claiming it could produce 20,000 vehicles for the full year, it reduced its forecast to 12,000 to 14,000 last February, then halved that target to just 6,000 to 7,000 vehicles last August. It blamed supply chain constraints for the slowdown.
That's why investors weren't too impressed when Lucid beat its lowered production forecast. The fact that it delivered only 61% of those vehicles was also disappointing, since its larger rival Tesla (TSLA -1.92%) delivered 1.31 million EVs in 2022.
Lucid also issued two major recalls throughout the year, which might have driven more of its potential customers to cancel their reservations. Competition from Tesla and other high-end EV makers likely exacerbated that pain.
But despite all those challenges, Lucid expects to produce 10,000 to 14,000 Air sedans in 2023. Its Arizona plant, which has an annual capacity of 34,000 vehicles, can easily handle that load, but it needs to resolve its supply chain issues first.
It also expects to expand the annual capacity of the Arizona plant to 90,000 vehicles this year to support the launch of its next EV, the Gravity SUV, in 2024.
For now, analysts expect Lucid's revenue to more than quadruple to $2.45 billion in 2023 as its net loss narrows from $2.6 billion to $2.3 billion. But to hit those targets, Lucid will need to reach its own production target and deliver nearly all of the vehicles it produces throughout the year -- and it hasn't proved that it can keep those gears running smoothly yet.
But Lucid has a major edge over other EV makers
Lucid's long-term growth is still speculative, but it has two major advantages against other struggling EV makers like Faraday Future (FFIE -4.55%) and Canoo (GOEV -5.00%): It still has plenty of liquidity and is firmly backed by the Saudi Arabian government.
Lucid ended the fourth quarter with $4.9 billion in total liquidity, and that was significantly boosted by its $1.5 billion stock offering last December. Saudi Arabia's Public Investment Fund, Lucid's largest shareholder, bought $915 million of those new shares to boost its total stake to about 62%.
That investment is a big vote of confidence for Lucid's plans to produce 500,000 vehicles by 2025. It believes its can hit that target -- which would represent a jaw-dropping compound annual growth rate (CAGR) of 311% from 2022 -- by expanding its domestic factory and opening an even larger one in Saudi Arabia.
Assuming Lucid's revenue keeps pace with its production rates, it could generate about $44 billion in revenue by 2025. If that happens, it could be a screaming bargain right now with an enterprise value of $18 billion.
It's a better bet than other speculative EV makers
Lucid still faces a lot of near-term challenges, and its habit of overpromising and underdelivering casts some serious doubts on its ambitious production targets for 2025. Yet the Public Investment Fund's confidence in Lucid also makes it a lot more appealing than other smaller EV makers.
I think Lucid is still worth buying as a speculative growth play in this tough market. It could still be a potential multibagger if it overcomes its growing pains, ramps up its production, and pulls buyers away from Tesla and other high-end EV makers. But it could be a volatile choice that requires a lot of patience.
