Lucid Group (LCID 0.41%) CEO Peter Rawlinson came from EV leader Tesla hoping to take on the Model S that he helped develop. He wants the Lucid Air luxury brand to take high-end EVs to another level.
It was the first to offer a 500-mile range, and it won multiple industry awards, including most recently the World Luxury Car of the Year, which was announced at the 2023 New York International Auto Show. But the just-released first-quarter earnings report shows the company will need more than just the Air's wealthy, niche customer base.
Lucid only said it would hit the low end of production guidance this year.
Strategic mistake?
In the first quarter, Lucid generated revenue of $149 million. But that was only from sales of about 1,400 vehicles, with the company already well into its second full year of production. Its initial deliveries were in October 2021. The average sales price in the first quarter was over $106,000 per vehicle based on deliveries and total revenue. Rolling out a niche initial product offering has been a marketing strategy that now looks questionable.
While the company has had production problems from supply chain disruptions, it seems there has also been waning interest in its high-end products. The Air sedans start at nearly $90,000 for the base model, with the Grand Touring model recently listed at $138,000. It's possible that Lucid management overestimated interest from that niche market. Reservations have been steadily declining since they peaked in August 2022. Notably, the company didn't include an update on Air reservations in its first-quarter report. Lucid may now be looking beyond its U.S.-based customers.
Data source: Lucid Group. Chart by author.
Lucid also has a strategic relationship with Saudi Arabia. The Saudi Arabian sovereign wealth fund was a majority investor in Lucid prior to its public listing, and it has continued to support the company. Lucid has plans to build its second factory -- and its first outside the U.S. -- in Saudi Arabia. The Saudi government has agreed to purchase up to 100,000 vehicles over the next decade.
Lucid's high-end offerings may find a large market in the wealthy kingdom. Whether by design or the result of a troubled start-up, that may be a catalyst Lucid investors now need to count on.
A concerning update
The good news from the recent earnings report is that the company believes its $4.1 billion in liquidity -- including $3.4 billion in cash, cash equivalents, and long-term investments -- will be enough to fund operations for at least another year. That's three months further out than what Lucid said in its prior quarterly earnings update. But inventory levels also rose by 22% sequentially from the fourth quarter. That could signal a rise in cancellations from prior reservation holders.
The company also seems to still be struggling with ramping up production. In its last quarterly update, Lucid said it expected to produce between 10,000 and 14,000 vehicles in 2023. It seems to have throttled that back some by stating only that "Lucid plans to manufacture more than 10,000 vehicles" in the most recent report.
There wasn't anything in Lucid's first-quarter report that should make investors run out and buy the stock. The company will show off its second vehicle later this year, with the Gravity SUV launch coming next year.
It's possible, if not likely, that Lucid will need to raise new capital before the Gravity goes on sale. EV manufacturing is a capital-intensive proposition, so that shouldn't come as too much of a surprise. But for now, there is no real catalyst for the stock. That could only change with a boost in production and sales this year or a push into the Saudi Arabian market later. For now, Lucid stock is really just a speculative bet on its long-term success.
