The electric vehicle industry is red hot right now as legacy automakers transition their vehicle lineups to electrified models and small EV start-ups have entered the race. Lucid Group (LCID 0.83%) is a young EV player -- it went public just two years ago -- but its Lucid Air has already won accolades from the auto industry, including MotorTrend's 2022 Car of the Year and Luxury Car of the Year from the 2023 World Car Awards.
But if there's been one lesson learned so far from Lucid's short time in the automotive world, it's that having a great product doesn't mean you'll have instant success. Here's what's hindering the company right now and why investors may want to stay on the sidelines of this EV stock.
Image source: Getty Images.
It's not a great time to need lots of money
Getting a new automotive company off the ground is massively expensive, which means Lucid is nowhere near profitable. Lucid lost $472 million in its fourth quarter and generated only $257 million in revenue.
And while all young companies can take a long time to reach profitability, Lucid is facing headwinds right now that are making it more expensive to produce vehicles. Prices of EV materials have risen over the past couple of years, which has put a lot of pressure on small EV makers like Lucid.
Lucid recently needed additional cash, and the company had a private sale of about 86 million shares to a group of investors back at the end of 2022, selling $1.5 billion in stock. While that cash boost came at a good time, rising inflation and high materials costs could continue to weigh on the company over the next couple of years.
Lucid's management says it has enough cash right now -- $4.9 billion at the end of the fourth quarter -- to keep it running through the first quarter of 2024. But beyond that, it's entirely possible that Lucid may have to raise additional money to keep the company running.
To top it all off, Lucid recently lost a $7,500 government tax credit for its vehicles and has tried to make up the difference by offering its own discounts to customers, which weighs down Lucid's vehicle margins.
Production hasn't been perfected yet
Another drawback for Lucid right now is that the company's vehicle production hasn't quite matched up with its goals. The company produced 7,180 vehicles in 2022 -- beating its estimate of between 6,000 to 7,000 -- but the only reason it technically exceeded that estimate is because management revised production goals down twice, from an initial estimate of 20,000 vehicles.
Another recent hiccup is that the company has been slow to turn the vehicles it produces into completed sales and deliveries. Lucid only delivered 4,369 out of the 7,180 vehicles produced in 2022, and demand for Lucid's vehicles may be slowing down. In the last three months of 2022, Lucid had reservations of 28,000 vehicles, down from previous reservations of 34,000, and analysts at Bank of America estimate that at least part of that drop is from cancelled orders.
The company recently reported first-quarter vehicle production of 2,314 and deliveries of 1,406 (Lucid will report its financial results for the quarter next month). Management says production for the full year will be between 10,000 to 14,000. But it's still not entirely clear if the company's vehicle production is consistent enough yet for investors to fully rely on those estimates.
I'd hold off on this one for now
Lucid could potentially emerge from these current headwinds as a strong EV player, but right now I think there are too many risks for the company that give me pause about buying shares of Lucid.
