Lucid Group (LCID 0.81%) is among the several electric vehicle (EV) start-ups that have been compelled to cut prices of their cars and accept dwindling margins because of a global slowdown in demand growth for EVs. The timing couldn't be any worse for Lucid, which was already struggling with production and sales. Understandably, that has been reflected in its share price -- the electric car stock lost 13.6% in March alone and is now down almost 38% this year, according to data provided by S&P Global Market Intelligence.
Ironically, in March, investors were reminded of a solid advantage Lucid has over its peers -- the backing of the government of Saudi Arabia. Even so, there's a reason why the EV stock still fell last month and is already down another 6.5% in April.
Lucid's production and sales woes
Last month, Lucid struck an agreement with an affiliate of Saudi Arabia's sovereign wealth fund, the Public Investment Fund (PIF), to raise funding of $1 billion. That affiliate, Ayar Third Investment Company, will buy $1 billion in convertible preferred stock.
PIF is already a major stakeholder in Lucid Group with a 59.8% stake as of Dec. 31, directly and indirectly through its affiliate. Since EV manufacturing is a capital-intensive business and funding is a major hurdle for start-ups, having PIF's backing sets Lucid apart from rivals as it doesn't have to worry much about finding new sources of capital. That's the biggest reason why Lucid stock moved higher last month after it announced its latest influx of funding.
However, although Lucid has ample liquidity, it is failing to produce EVs at scale, as was evident from the fourth-quarter and full-year 2023 numbers it announced in late February. The company produced 2,391 vehicles in the quarter but delivered only 1,734 units, and revenue slumped 39% year over year to $157.2 million, driving its net loss higher by nearly 38%.
Most importantly, Lucid says it expects to produce only 9,000 units in 2024 versus 8,428 vehicles in 2023. The company had been confident that it would produce more than 10,000 EVs last year -- until its third quarter, when it slashed its production guidance to align with slow deliveries.
Can Lucid stock recover?
Lucid doesn't reveal how many orders it has, but its production guidance clearly reflects low demand for its luxury cars. That's a major concern as the company has also slashed the prices of its EVs in recent months to remain relevant in its intensely competitive industry.
Lower selling prices, poor production and sales, and gaping negative margins are just some of the reasons why several analysts slashed their price targets on Lucid stock in recent weeks. RBC analyst Tom Narayan, for instance, cut his price target in half to $3 per share in March citing Lucid's inability to attract enough demand for its cars amid the EV price war, among other things.
Lucid is now banking on its Gravity SUV to drive growth and expects to start production of it later this year. It has the money to do so, but neither the liquidity nor its growth plan will make much of a difference to Lucid's stock price until sales pick up.
