Lucid Group (LCID 2.17%) has had a stunningly poor start in 2024 -- with its shares down by a whopping 32% in just two weeks as it faces ongoing operational challenges that show no sign of letting up. Can Lucid recover from its mess, or is it on track for bankruptcy? Let's explore what the future could hold for this embattled penny stock.
What is going wrong for Lucid in 2024?
Lucid was hit by a series of back-to-back negative news releases this month. On Jan. 11, management released its fourth-quarter deliveries report. The automaker produced 2,391 vehicles while delivering just 1,734 in the quarter. While this number was higher than consensus estimates, it highlights some very alarming trends in the business.
NASDAQ: LCID
Key Data Points
For starters, Lucid simply isn't scaling very fast. Deliveries are down 12% against the prior-year period, which suggests the biggest barrier to growth is demand -- a very different situation from Tesla, which was mainly constrained by its production capacity during its early years.
It looks like consumers simply don't want what Lucid is selling. And this could become a self-fulfilling prophecy as the company's poor operational performance creates the fear that it could go bankrupt and be unable to provide post-purchase support and maintenance. Such concerns aren't unreasonable, considering that the day after its delivery report, the company recalled 2,000 of its Air electric sedans over potentially faulty window defrosters.
Is there light at the end of the tunnel?
In the third quarter, Lucid generated an operating loss of $752.9 million, and judging by the company's lackluster fourth-quarter deliveries, cash burn could worsen substantially in the subsequent period. That said, with $4.4 billion in cash and short-term investments on its balance sheet, Lucid looks capable of sustaining these massive losses for several more quarters. But eventually, it may need outside help.
The good news is that Lucid is backed by Saudi Arabia's Public Investment Fund (PIF), which upped its stake in the company to 60% after a $1.8 billion investment in June. Saudi Arabia has an incentive to see Lucid succeed because the automaker is part of its efforts to diversify its economy away from its current overdependence on fossil fuels.
Image source: Getty Images.
The Saudis have committed to purchasing up to 100,000 Lucid vehicles over the coming decade. And in September, Lucid opened the country's first-ever assembly facility with an annual capacity of 5,000 vehicles.
Over the long term, the Middle East could become a key market for Lucid. And the Saudi government could try to make the company its "national champion" by giving it the financial support it needs to succeed. But while this may be the only thing standing between Lucid and eventual bankruptcy, investors also have to worry about equity dilution as the PIF increases its stake in Lucid or possibly privatizes it.
Is Lucid stock a buy?
Lucid is not a buy. And in the coming year, the automaker could see its problems with sluggish growth and spiraling losses worsen. While the Saudi connection could help avert bankruptcy, that comes with equity dilution, which lowers investors' claim on future earnings.
Saudi privatization is also a double-edged sword because, while the acquirer may buy Lucid's shares at a premium, common stock investors would lose access to its long-term potential, if any exists.
