Shares of Lucid Group (LCID 0.41%) sank 17.7% this week, according to data from S&P Global Market Intelligence. The electric vehicle (EV) start-up couldn't grow revenue in the third quarter and is still operating in the red, causing investors to sell the stock. As of the market close on Friday, the stock is off 94% from the all-time highs it set during the bubble in 2021.
The air is coming out of the EV sector, that's for sure.
Profits are a long way off
In the third quarter, Lucid delivered 1,457 vehicles to customers. This is significantly less than the EV leader, Tesla, as well as other EV start-ups such as Rivian Automotive. Revenue was only $137.8 million. On this revenue, Lucid posted an operating loss of $753 million with heavy gross profit losses. Essentially, the company is losing a lot of money on every car it sells due to its subscale operations.
With a vertically integrated operating model, Lucid Group needs to greatly increase its sales to customers if it ever expects to start generating positive cash flow. And it needs to do this quickly. Over the last 12 months, free cash flow was negative $3.5 billion. This is barely more than the cash it has on its balance sheet. What this means is that Lucid Group needs to achieve positive free cash flow within the next year, or else it will need to raise money from the capital markets. That would be bad news for shareholders, especially with the stock price in the gutter.
Can vehicle deliveries grow?
Lucid Group is trying to cater to the luxury car buyer with its EV products, with the starting price of its sedan at over $80,000. There is likely a solid niche for these vehicles, especially for the subset of the American population with a lot of discretionary funds. However, it will be competing heavily with Tesla, Rivian, and legacy players like Mercedes and BMW to get these customer orders.
The EV market is crowded with supply, which is why companies like Tesla have started to slash car prices. Lucid has cut prices on its vehicles, which is not great news for a company already burning a ton of cash. If Lucid can't keep prices high when it sells under 1,500 vehicles in a quarter, is there truly a path forward for this business? It is probably best to avoid buying shares of Lucid Group unless something drastically changes here.
