With drop-dead gorgeous cars, industry-leading powertrain technology, and support from one of the wealthiest nations in the Middle East, Lucid Group (LCID 5.20%) seems to have everything it needs to win. But since hitting an all-time high of $58 in early 2021, shares have been in a slow-motion collapse -- shedding 93% of their value at the time of writing as the company grapples with weak demand and spiraling losses.
The next three years will be a make-or-break period for Lucid. It could either fix its operational challenges or cease to exist as an independent company. Let's discuss what the future may hold for investors.
NASDAQ: LCID
Key Data Points
What is going wrong with Lucid?
On Dec. 11, Lucid's CFO, Sherry House, abruptly left her position with no replacement. And while Lucid didn't give any specific reason for the departure, the company's spiraling operational results probably didn't make the job very attractive. While Lucid is arguably supposed to be a growth company, it is doing the opposite.
In the third quarter, revenue fell by a whopping 29% to $137.8 million, and Lucid slashed its production goals from 10,000 to a range of 8,000 to 8,500 to align with weaker-than-expected demand in the fourth quarter. This situation is very different from early-stage Tesla, which was able to sell its cars almost as fast as it could produce them because of massive waitlists.
For Lucid, the negative growth is a big problem, because it still hasn't scaled into profitability. On average, the company lost just under $800 million from operations per quarter in 2023 (annualized to $3.2 billion). And with just $4.42 billion in cash and equivalents on its balance sheet, it may run out of liquidity soon and be forced to rely on outside sources of capital like debt or equity dilution to fund its operations.
What is the silver lining?
While Lucid looks to be in stormy weather, the situation has a silver lining. The company receives massive support from the government of Saudi Arabia, which owns 60% of Lucid shares through its Public Investment Fund (PIF). The kingdom is trying to diversify its finances away from fossil fuels, and it may use the struggling automaker as a national champion to help it achieve these long-term goals.
Image source: Getty Images.
The Saudi government has committed to buying up to 100,000 Lucid vehicles over the next decade. And in September it opened the country's first car manufacturing facility near its capital, Jeddah. It looks unlikely that Saudi Arabia will let Lucid go bankrupt because the automaker is key to its clean energy transition. At the very least, the PIF may continue to be a source of debt and equity financing.
On the operational side, Lucid is also working on new vehicle models, such as the Gravity SUV, expected to launch in late 2024. New products could stimulate demand and help Lucid increase brand awareness.
It's not yet time to buy
Lucid stock is not a buy right now because of its extreme losses and lack of top-line growth. And with a 60% stake in the company already, it's hard to imagine the Saudis can support it much further without owning an even more disproportionate amount of shares, or simply taking it private.
While there are some reasons for investors to be excited about Lucid, it makes sense to wait for a few more quarters or even years of data before considering a position in the stock.
