Based on reviews and accolades from trusted industry sources, it wouldn't be a stretch to say that Lucid Group (LCID 0.41%) produces some of the world's best electric vehicles (EVs). On the other hand, the company has had one of the worst-performing stocks of any credible player in the space.
Lucid's share price is down roughly 94% from the high it reached after going public through a merger with a special purpose acquisition company in July 2021. Notably, the EV specialist is gearing up to release its fourth-quarter results on Wednesday, Feb. 21, and recent coverage from a Morgan Stanley analyst suggested that most of the bearish news surrounding the business has already been priced into the stock.
Notably, the company is also scheduled to make a push into the SUV category with the introduction of its Lucid Gravity later this year. Is now the time to buy this heavily beaten-down EV stock?
Image source: Lucid.
Lucid's road out of the red has gotten much longer
Lucid's Q4 report will provide information about the company's revenue and net loss in the period. There's also a fair chance Lucid will offer guidance on vehicle production and deliveries this year. But the company already released numbers for exactly how many vehicles it produced and delivered in 2023, and the numbers weren't pretty.
Lucid produced only 8,428 vehicles last year, falling short of the company's guidance that said it would produce more than 10,000 vehicles. The shortfall looks even worse considering management had initially guided for production to be between 10,000 and 14,000 units.
2023's production number was up just 17.4% from the 7,180 vehicles it produced in 2022. Meanwhile, vehicle deliveries rose from 4,369 vehicles to 6,001 vehicles -- representing growth of roughly 37.4%.
Lucid may have faced some production issues that caused it to fall short of its original targets for 2023. But there's a good chance that the company slowed manufacturing because vehicle inventory was starting to pile up. That would be in line with broader trends impacting the EV industry right now and suggests that the economies of scale needed to achieve profitability are much further out.
Why Lucid is threatened by shifting industry dynamics
Unfortunately, it looks like Lucid will face some significant headwinds in the near term. The overall EV market is still poised for growth, but adoption looks like it will proceed at a much slower rate than previously anticipated. Because Lucid needs to scale production and maintain pricing power in order to become profitable, current industry dynamics pose big challenges for the business.
On Feb. 15, Lucid announced additional price cuts for its vehicles -- the company's third round of price reductions in just seven months. The luxury EV specialist isn't the only player in the category that has been slashing prices and making production shifts. Tesla has been aggressively cutting prices, and General Motors and Ford Motor Company have both recently announced major cutbacks for planned EV productions.
The scheduled launch of the Gravity SUV at the tail end of this year should boost Lucid's production and delivery numbers, and making its vehicles more affordable should also help boost demand. But the business is still far from the economies of scale that it will need to stop posting large losses.
Challenges aside, could the stock be a smart contrarian buy?
It's no secret that Lucid is facing big challenges. But on Feb. 15, Morgan Stanley analyst Adam Jonas published a note on the company suggesting that most of the existing bad news was already priced into the company's stock.
As an example, investors already know that the EV specialist fell far short of its production goals for 2023 -- and the stock already saw big sell-offs in conjunction with that news. On the other hand, Jonas maintained an underweight rating on the stock in his note, indicating he doesn't think investors should buy shares right now.
While we don't know exactly how Lucid's financial performance for the fourth quarter will come in, it's virtually certain that the business will post a large loss in the period. The company recorded a net loss of $752.9 million on sales of $137.8 million in last year's third quarter. With the business seemingly implementing price cuts to boost demand for its vehicles, it seems unlikely that financial performance will improve dramatically in the near term.
Lucid ended the third quarter with cash, equivalents, and short-term investments totaling roughly $4.4 billion, so it has some financial breathing room -- but not much given the enormity of its losses. Alternatively, there's a good chance that the company will be able to raise additional funds by selling more stock. Saudi Arabia's Public Investment Fund (PIF) already owns roughly 60% of the company, and it wouldn't be surprising to see the PIF continue to inject capital and increase its stake.
But for the average investor, that means that there's a big risk of stock dilution. While it's possible that the beaten-down stock could see some strong rebound momentum above current levels, the business fundamentals and ownership structure suggest that investors without very high levels of risk tolerance should stay away from the EV specialist's shares.
