Lucid Group (LCID 0.41%) has taken its investors on a wild ride since its public debut three years ago. The luxury electric vehicle maker's stock opened at $25.24 after it went public by merging with a special purpose acquisition company (SPAC), and its stock more than doubled to a record high of $55.52 just four months later.
At the time, investors were impressed by three things: It was led by Tesla's (TSLA 2.60%) former chief vehicle engineer, Peter Rawlinson; it was on track to deliver its first vehicles, and it set some ambitious long-term growth targets.
But today, Lucid trades at less than $4. Its stock tumbled as the company missed its own delivery targets, delayed its new vehicles, and racked up more losses. So, should contrarian investors buy this beaten-down electric vehicle (EV) stock as a turnaround play?
A Lucid Air sedan. Image source: Lucid.
How bad was Lucid's slowdown?
Lucid currently sells several versions of its Air sedan. During its pre-merger presentation, it claimed it could deliver 20,000 vehicles in 2022 and 49,000 vehicles in 2023. It also planned to launch its second vehicle, the Gravity SUV, in 2023.
Yet Lucid delivered only 4,369 vehicles in 2022 and 6,001 vehicles in 2023, and it postponed the Gravity SUV's launch to late 2024. It also stopped disclosing its vehicle reservations at the beginning of 2023 and slashed its prices over the past year. Those cautious moves suggest it's struggling to sell more vehicles.
Lucid Air sedans cost between $71,400 and $251,000 after the latest price cuts, but it's still taking steep losses on each vehicle sold. In 2023, its revenue declined 2% to $595 million as its net loss widened from $2.56 billion to $2.83 billion.
On the bright side, Lucid aims to deliver 9,000 vehicles in 2024 as it overcomes its supply chain issues, expands its production capacity, and finally launches the Gravity SUV. Analysts expect its revenue to rise 25% to $745 million as it slightly narrows its net loss to $2.71 billion.
But based on those expectations, Lucid's stock still isn't cheap at 12 times this year's sales. Tesla, which is generating slower growth but remains firmly profitable, trades at 8 times this year's sales.
NASDAQ: LCID
Key Data Points
What is Lucid's turnaround plan?
Lucid ended the first quarter of 2024 with $5.03 billion in total liquidity and a manageable debt-to-equity ratio of 1, so it won't go bankrupt anytime soon. However, its secondary share offerings and stock-based compensation increased its number of outstanding shares by more than 40% over the past three years, so it still doesn't seem like a bargain after dropping more than 90% from its all-time high.
But Lucid isn't down for the count yet. It expects Saudi Arabia's government, which owns more than 60% of its shares through its Public Investment Fund, to drive its growth. The Saudi government has already agreed to buy 100,000 of Lucid's vehicles over the next decade, and it funded that country's first factory, which opened last September.
Lucid's Saudi Arabian AMP-2 factory can produce only 5,000 vehicles annually right now, but management said it expects to expand its capacity to 155,000 vehicles by the middle of the decade. It also plans to expand the annual production capacity of its AMP-1 plant in Arizona from 34,000 vehicles to 400,000 over the next four years.
Those expansion plans are ambitious, but Lucid still isn't producing enough vehicles to max out AMP-1's current capacity. Therefore, investors shouldn't confuse its maximum production capacity with its actual production and delivery numbers.
Could Lucid be a contrarian play?
For now, investors should see if Lucid can actually deliver 9,000 vehicles this year, narrow its losses, and stay in the Saudi Arabian government's good graces. If it accomplishes those three things, its stock price might stabilize at these levels.
Assuming Lucid scales up its business, analysts expect it to generate $3.65 billion in revenue in 2026. That would represent a compound annual growth rate (CAGR) of 83% from 2023. With a reasonable price-to-sales ratio of 10, its market cap could nearly quadruple to $36.5 billion over the next two years. So in a best-case scenario, we might see the stock rise back to the double digits if it plays all of its cards right, but it won't hit its all-time high anytime soon.
That said, three red flags are keeping me away from Lucid. First, it usually overpromises and underdelivers. In 2022, it set a goal for producing 500,000 vehicles in 2025, but its expansion plans simply don't support that fuzzy math. Second, its recent price cuts suggest it can't carve out a defensible niche in luxury EVs. Lastly, its price-to-sales ratio could easily drop to the single digits if it disappoints its investors again. That's why I don't think Lucid is a contrarian investment yet.
