With shares down 66% over the past 12 months, Lucid Motors (LCID 0.41%) stock is reeling from a combination of weak electric vehicle (EV) demand and operational underperformance. Despite making seemingly good cars, the company has been unable to unlock the scale it needs to cover its substantial cash outflows. Let's explore what the next five years could have in store for this struggling automaker.
What has gone wrong in the EV industry?
Several years ago, it seemed inevitable that EVs would quickly dominate the car industry. Governments around the world worked to incentivize the technology while major automakers invested billions to transition away from gas-powered alternatives. Lucid hit public markets at the height of this optimism in 2021. But now, things look a little more complicated.
Legacy automakers like Ford and General Motors are scaling back their sales targets. And U.S. market leader Tesla saw fourth-quarter automotive revenue grow by just 1% year over year, down sharply from the 33% growth it posted in Q4 2022.
There are several reasons for the industry weakness. In the near term, high interest rates are the biggest threat because they make it harder for people to afford big-ticket purchases. But over the long term, rising competition (especially from low-cost manufacturers in China) could cause EV margins to deteriorate, making it extremely difficult for companies like Lucid to ever turn a profit.
How are Lucid's finances?
The good news is that Lucid seems to have a strong technological foundation. In June, it inked a deal with luxury automaker Aston Martin to supply state-of-the-art electric vehicle powertrains and battery systems. This $450 million revenue opportunity also serves as an impressive vote of confidence in the technology behind Lucid's vehicles. But unfortunately for Lucid, one-off deals won't be enough to keep the company afloat.
Image source: Getty Images.
Q3 revenue fell by 29% year over year to $138 million. But more alarmingly, the company had a cost of revenue of $490 million, which means it costs Lucid more to manufacture and sell its vehicles than it can recoup by actually selling them. That's before including overhead costs like administrative office salaries, research, or advertising.
In total, Lucid's operations burned through $753 million in the third quarter. And with just $4.74 billion in cash and short-term investments, the company at this rate only has a couple of years before it runs out of runway and is forced to look for outside funding via debt issuance or equity dilution.
What do the coming years have in store?
Right now, Lucid's stock seems to be tracking toward the company running out of cash. But that doesn't mean it will go under. According to Reuters, the government of Saudi Arabia owns around 60% of Lucid's shares through its Public Investment Fund (PIF). The oil-rich kingdom considers the automaker to be part of its ambitious green energy transition.
Over the coming years, Saudi Arabia might continue supporting Lucid by buying newly issued shares in return for a higher ownership stake in the company -- as it has done in the past (although the country has not announced any plans to do so). But while Saudi equity funding could provide the cash Lucid needs to survive, it would lower current investors' claim on future earnings by increasing the number of shares outstanding. Investors should avoid Lucid stock until more information becomes available.
