Coming into Lucid Group's (LCID 0.41%) third-quarter earnings report, there were already signs that the company wouldn't reach its goal of producing 10,000 vehicles this year.
It had already told investors that it only produced 1,550 cars in the third quarter and delivered 1,457 vehicles, well below the run rate needed to produce 10,000 vehicles this year. Lucid confirmed those fears in its third-quarter earnings report Tuesday night, saying it now expected to produce 8,000 to 8,500 vehicles this year "to prudently align with deliveries."
That seemed to be a euphemism for the sluggish demand that much of the electric vehicle (EV) industry is experiencing right now for reasons that aren't fully clear. Tesla CEO Elon Musk has blamed higher interest rates and consumers' increased price sensitivity. Others have theorized that early adopters have already purchased an EV, and the next wave of customers will be harder to convince to switch from gasoline vehicles to electric. Lucid itself noted challenges in the macro environment multiple times on its earnings call.
There were some other surprises in the quarter. Revenue was down substantially from the quarter a year ago when the company sold a similar number of cars at a higher price point. Overall revenue in the quarter fell 29.5% to $137.8 million, which was well below estimates at $192.7 million. The chart below illustrates the company's income statement, showing the other challenges it's facing.
While revenue fell in the quarter, the company held its costs mostly flat with the period a year ago. As a result, its generally accepted accounting principles (GAAP) loss expanded from $530 million to $631 million, and it lost $706 million in free cash flow.
Why it's too soon to give up on Lucid
While the third-quarter results were clearly disappointing and the reason why the stock was down after hours, the company is executing on its longer-term growth plan.
In September, it began production of the Lucid Air Pure rear-wheel drive (RWD) and the luxury Lucid Air Pure Sapphire, completing the Lucid Air lineup. It also plans to unveil its Lucid Gravity SUV at the LA Auto Show next week and expects to begin production late in 2024.
It also closed its strategic partnership with Aston Martin, agreeing to supply the luxury automaker with electric vehicle powertrains, battery systems, and software in exchange for cash and a stake in Aston Martin.
Discussing the relationship on the earnings call, Lucid management said that there was the potential for the company to partner with more traditional automakers. CEO Peter Rawlinson said that the efficiency of the company's batteries is a strategic advantage as its technology allows vehicles to go further on fewer kilowatt hours, meaning that the technology can work with smaller and lighter batteries, which also helps the cars' efficiency and handling.
Can Lucid make a turnaround?
Lucid's vehicles have won a number of accolades and its EVs beat the competition on range, but those features haven't been enough to drive significant demand for its vehicles.
The company has been unable to convert that positive buzz into demand for its vehicles, however. With macro challenges and high interest rates facing the company, it seems unlikely to ramp up sales anytime soon.
Lucid has $4.4 billion in cash, cash equivalents, and short-term investments on its balance sheet, which it could burn through in just a few quarters. However, the company has a close relationship with Saudi Arabia, whose Public Investment Fund (PIF) has already invested billions in Lucid and would likely put in more, especially since it doesn't want to lose its initial investment.
That should give Lucid some time to execute and build demand for its vehicles, but demand seems to be outside of the company's control, given the impact of high interest rates and the general weakness in the EV industry.
In other words, don't expect a turnaround in Lucid anytime soon, but if the company can build buzz for the Gravity SUV and release it on time, the stock could eventually deliver a comeback. With falling revenue and wide losses, shares deserve to be down on the report, but Lucid's technology holds a lot of promise. Patient investors could eventually be rewarded, but expect the volatility in Lucid stock to continue.
