With its shares down by an eye-watering 42% year to date, Lucid Motors (LCID -0.69%) has been a nightmare for recent investors. The automaker is grappling with slowing growth, spiraling losses, and weakening consumer sentiment in the electric-vehicle (EV) industry, putting its long-term survival in doubt.
Below, I'll dig deeper into what the next five years could have in store for this struggling automaker.
What went wrong for Lucid?
When it hit public markets through a special-purpose acquisition company (SPAC) merger in July 2021, Lucid benefited from the optimism surrounding other EV makers like Tesla, which had risen to all-time highs in the post-pandemic period. Interest rates were low, consumer spending was high, and the market seemed willing to overlook weak fundamentals in favor of future potential. But this didn't last.
Over time, investors became increasingly concerned with Lucid's lackluster growth and spiraling losses -- challenges that are yet to improve. In the fourth quarter of 2023, revenue declined 39% year over year to $157.2 million as the company sold fewer cars for lower prices. Declining sales are a huge red flag for what was once seen as a "growth" company, which needs more scale for its business model to work.
What could the next five years have in store for Lucid?
Lucid is at an exceptionally early stage of its operations. With a fourth-quarter gross loss of $252.8 million, the company spends significantly more to manufacture and deliver its cars than it can recoup by selling them (even before considering overhead expenses like executive salaries, advertising, or research). With sales declining, this problem is getting worse instead of improving.
In a couple of years, the company will probably burn through the $4.3 billion in cash and short-term investments on its balance sheet and need to raise outside capital through debt or equity dilution, which involves creating and selling additional units of its stock. This strategy can raise capital but hurts current investors' claims on the company's future earnings.
Image source: Getty Images.
On the operational side, management also has ways to get out of the hole.. Lucid is working on new vehicle models, such as the Gravity SUV, expected to be available in late 2024. The company has expanded its U.S. manufacturing capacity in preparation for what it claims will be its "next phase of growth."
Despite the company's financial challenges, there are some things to like about Lucid. For starters, its Flagship Lucid Air has received widespread praise from industry observers -- earning a spot in Car and Driver's 10 Best List for 2024 and the 2023 World Luxury Car of the Year award. Lucid has built a reputation for quality, and the new Gravity SUV could help drive even more attention to its brand and help reignite consumer demand.
Is Lucid stock a buy?
With a price-to-sales (P/S) multiple of 8.6, Lucid stock is expensive, considering its weak financial position. Revenue is declining, gross margins are negative, and its cash position is dwindling. In the near term, shares look poised for continued downside.
With that said, there are still some things to like about Lucid. And the new Gravity SUV could become the big break that reignites optimism for its business. Long-term investors should keep a close eye on the struggling automaker and be ready to consider taking a position if its situation improves.
