Are Lucid's Latest Numbers a Warning Signal for Investors?

Lucid Group (LCID 0.40%) stock has plunged nearly 61% in just the past one year as of this writing, and that includes today's early morning fall in the stock's price. Poor execution, as reflected in low production and deliveries, surging costs, and cash burn, hit investor sentiment in the electric vehicle (EV) stock really hard.

Lucid, though, tried hard to convince investors earlier this year that it knows the way forward, and that it'll strive to improve execution, optimize costs, and nearly double its production in 2023.

Turns out, it was perhaps too early to become hopeful about Lucid's prospects, or at least that's what the company's latest numbers suggest. Lucid just reported its first-quarter numbers, and the number of red flags this time around is far too many to ignore.

Every number raises a concern 

While we usually compare year-over-year operational and financial performances of companies, sequential comparison make more sense in Lucid's case as the company started producing and delivering EVs only in late-2021, and it pays to know how fast has the company ramped up production and deliveries since.

Prepare to be disappointed.

Lucid generated revenue worth only $149.4 million in the first quarter versus $257.7 million in the fourth quarter. Remember, Lucid recognizes revenue upon the delivery of its vehicles, so it's evident the company's deliveries are falling. Numbers support the argument: Lucid produced 2,314 vehicles but delivered only 1,406 units in Q1.

Lucid is perhaps struggling with demand. The company ended Q1 with an inventory of more than $1 billion versus $834 million on Dec. 31. That included a finished goods inventory of roughly $411 million. Considering that Lucid's lowest Air sedan trim is priced at $111,900 per unit as per its website, it's safe to assume the company has thousands of ready vehicles lying in its factories. 

There's another striking number that stands out: Lucid recorded inventory write-downs of $227 million in Q1. In the company's own words: "We record inventory write-downs for excess or obsolete inventories based upon assumptions about current and future demand forecasts. If our inventory on-hand is in excess of future demand forecast, the excess amounts are written-off."

Ouch.

So what's the demand like for Lucid cars right now, you may ask?

Well, that brings up the biggest red flag from Lucid's Q1 earnings report.

Is Lucid in trouble?

Unlike previous quarters, Lucid did not reveal its reservation number this time around. Remember, Lucid's reservations have dwindled in recent quarters. Take a look.

Data source: Lucid Group. Table by author. 

With Lucid avoiding the reservation number altogether in its latest quarterly report, it's likely its reservations have fallen further. That's the last thing investors want to see in a start-up from a high-growth industry, more so when Lucid was expected to emerge as a real threat to EV leader Tesla given its unbeatable mile range. 

Lucid also discreetly dialed down its annual production guidance for 2023 to "over 10,000" vehicles from its last provided guidance range of 10,000 to 14,000 vehicles. That's abysmal, especially given how Lucid hugely disappointed the markets in 2022 when it produced only 7,180 cars versus its original outlook of 20,000 units. 

Lucid's painfully slow pace of production and deliveries are apparently forcing some customers to cancel orders as evidenced by falling reservations and inventory write-downs. And if demand falls, so will production. That, in turn, will mean high costs for Lucid and bigger losses. Just so you know, Lucid suffered a net loss of nearly $780 million in Q1 versus $473 million last quarter. 

Of course, that also means Lucid is burning cash rapidly. Management said its cash and cash equivalents balance of $3.4 billion and total liquidity of $4.1 billion as of the end of the first quarter is sufficient to fund the company through at least Q2 2024.

Avoid Lucid stock

The verdict is clear: Lucid has plenty of problems at hand, and things have only worsened in recent quarters no matter which way you look at it. 

Sure, aside from its Air reservations, Lucid has a purchase commitment of 50,000 cars up 100,000 units spread over the next decade from the Saudi Arabian government. But when the deal was announced, Lucid stated that delivery of the vehicles under the contract is "required to commence no later than the second quarter of 2023." Meeting that target appears to be a tall task for Lucid right now. 

I see no chances of a recovery in Lucid stock just yet, and for all you know, Lucid's latest earnings report could only rekindle investors' hope of a recent rumor coming true: That major investor, Saudi Arabia's Public Investment Fund, takes Lucid private.