Lucid (LCID 0.18%), a fledgling maker of luxury electric vehicles, went public by merging with a special purpose acquisition company (SPAC) in July 2021. At the time, it attracted a lot of attention for three reasons: It was led by Tesla's (TSLA 0.66%) former chief vehicle engineer Peter Rawlinson, it planned to produce even pricier EVs than Tesla, and it was on track to ship its first vehicles by the end of the year.
Lucid's stock opened at $25.24 on its first day as a combined company, and it more than doubled to a record high of $55.52 just four months later. That rally was amplified by the buying frenzy in growth and meme stocks in late 2021.
Image source: Lucid.
But today, Lucid's stock trades at about $2. The bulls retreated as the company repeatedly missed its own production estimates, slashed its prices to gain new customers, and racked up steep losses. Rising interest rates also popped its bubbly valuations.
So is it too late to buy this beaten-down stock as a contrarian play on the EV market?
Why did the bulls give up on Lucid?
Lucid sells several versions of its Air sedan, and it plans to roll out its second vehicle, the Gravity SUV, by the end of 2024. Prior to going public, it told its potential investors it could produce 20,000 vehicles in 2022 and 49,000 vehicles in 2023.
Unfortunately, Lucid only produced 7,180 vehicles in 2022 and 8,428 vehicles in 2023 as it grappled with supply chain constraints and a weakening EV market. It only expects to produce approximately 9,000 vehicles in 2024, which suggests it will also broadly miss Rawlinson's long-term target of producing more than 500,000 vehicles in 2025.
For 2023, Lucid's total deliveries rose 37% to 6,001 vehicles, but its total revenue still dipped 2% to $595 million as it repeatedly reduced its average selling prices. Meanwhile, its operating loss widened from $2.95 billion to $3.10 billion. That translates to an average operating loss of $367,773 on each vehicle it produced during the year.
For 2024, analysts expect Lucid's revenue to rise 37% to $898 million as it slightly narrows its operating loss to $2.56 billion. Its core business is still growing, but investors don't seem eager to bet on its longshot turnaround in this wobbly market.
What's the contrarian view for Lucid?
It's easy to see why Lucid's stock is trading so far below its all-time high, but it won't go bankrupt anytime soon. It ended 2023 with $4.78 billion in total liquidity, which it insists can last through "at least" 2025 as it ramps up its production of its Gravity SUV. Its manageable debt-to-equity ratio of 0.8 also gives it some room to raise fresh cash.
Furthermore, the Saudi Arabian government owns more than 60% of Lucid's shares through its Public Investment Fund (PIF), and it's committed to buying up to 100,000 of its vehicles over the next decade. If Lucid struggles to ramp up its production, the PIF might step in and shore up its liquidity or boost its stake in the company.
Lucid could struggle to scale up its business over the next few years, but analysts still expect it to generate $4.39 billion in revenue in 2026. That would represent a compound annual growth rate (CAGR) of 95% from 2023.
We should certainly take those rosy estimates with a grain of salt. But with an enterprise value of $4.2 billion, Lucid trades at just 2 times next year's sales -- while Tesla trades at 4 times next year's sales. That might be why Lucid's insiders bought more than 100 times as many shares as they sold over the past 12 months.
Is it too late to buy Lucid's stock?
Lucid's downside potential might be limited at these prices, but its track record of overpromising and underdelivering, its ongoing price cuts, and its staggering losses are all preventing me from touching its stock. I believe investors looking for a turnaround play in the EV market should buy Rivian (RIVN 2.44%) -- which is on track to produce 57,000 vehicles this year -- instead of waiting for Lucid to finally get its act together.
