The 2020 and 2021 stock market bubble brought many companies public that should have stayed private. Specifically, a lot of electric vehicle (EV) stocks with shaky business models.
People wanted to copy Tesla, and investors were fueling the EV makers with absurd levels of funding. It was a fun time. Well, maybe only if you didn't buy the stocks.
One company still kicking around is Lucid Group (LCID 5.20%). The aspiring luxury EV brand went public with much fanfare in 2021 as it aims to build the next generation of upscale automotive products.
Now, its stock is off 96% from all-time highs and down 26.3% in the last month alone. The company is struggling to grow production and find willing customers while managing intense cash burn and worrying unit economics. Scary stuff.
Here's what went wrong with Lucid Group, and why the stock is down 96% from all-time highs.
A high-end electric vehicle brand
Lucid Group is aiming to build an EV brand that is on par with other luxury brands such as BMW, Audi, and Mercedes-Benz. It seems to have fulfilled this goal with the first model it put out, the Lucid Air. The sedan costs close to $100,000 and has solid reviews for its comfort and style. This is something that should attract wealthy customers to adopt EVs.
It doesn't hurt that the car comes with a best-in-class mileage range for its battery charge as well.
Some problems have arisen for the automaker, though. Even though big EV brands such as Tesla and BYD don't compete much in the luxury sedan segment, Lucid Group is struggling to grow production and find willing buyers. Its quarterly production peaked at just 3,500 in the fourth quarter of 2022 and has fallen to 1,800 in the third quarter of this year.
Increased competition within the luxury space may be causing Lucid Group's production to stall. The aforementioned German automakers are pushing out EV models, while start-ups such as Rivian Automotive enter the space with high-end electric trucks.
People -- even the most wealthy -- don't need an endless amount of cars. Lucid Group is finding the premium automotive space much harder to tackle than its original forecast. In 2021, it predicted 90,000 deliveries in 2024, including from a luxury SUV that has not come out yet. As of this writing, it looks like the company will produce fewer than 10,000 vehicles this year.
NASDAQ: LCID
Key Data Points
Slowing revenue growth that did not meet financial forecasts
In line with its 90,000 production estimate, Lucid Group predicted it would generate around $10 billion in revenue in 2024. That has not happened; it hasn't even gotten close. Over the last 12 months, revenue was just $668 million and is actually lower than the same period a year ago.
The revenue figures are ugly, but cash flow looks even worse. On this $668 million in revenue, Lucid Group is burning $2.9 billion in free cash flow every year. At the end of last quarter, management said the company had around $4.3 billion in liquidity, a fancy term that means available funds to pay for all its expenses. That gives the company a little under two years before it runs out of cash and has to raise more from issuing debt or equity.
LCID free cash flow; data by YCharts.
More pain coming
The craziest thing about Lucid Group is not even its cash burn. It is the fact that the stock still trades at a market cap of $6.79 billion, close to 10 times its trailing sales -- sales that are going down with terrible unit economics.
A price-to-sales ratio (P/S) of 10 is even higher than that of Tesla, which is an automotive stock with an ultra-premium valuation. A typical automaker like Toyota will trade at a P/S below 1.
Even if you believe Lucid Group can get to profitability at its current sales level, there is still 90% downside for the stock from here. And I think that is far-fetched.
It is hard to see how Lucid Group ever generates a profit, meaning tough sledding for shareholders over the next few years. Don't even think about adding this stock to your portfolio today.
