Lucid Group (LCID 4.04%) is one of many electric vehicle (EV) start-ups trying to catch the lightning in a bottle that was Tesla. Given the increase in competition in the vehicle niche, investors have figured out that this is probably an unrealistic goal.
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This may explain why, after a huge early rally in the shares, Lucid's stock has now fallen over 90% from its peak. Unlike many peers, however, Lucid is still trucking, with plans to double its production in 2025. Is that enough?
Lucid is playing catch-up
The big plan for 2025 is for Lucid to increase its production from the 2024 tally of just 9,000 or so of its electric vehicles. Before talking about the 2025 goal, it will help to put 2024 production output into context. Industry leader Tesla produced nearly 1.8 million EVs in 2024. And fellow start-up Rivian Automotive produced around 49,500 of its high-end EV trucks.
Lucid is way behind on the production front. The big goal in 2025 of doubling its production to roughly 20,000 vehicles won't change that fact. The company has a long road ahead before it has anywhere near the production capacity to compete with larger EV peers, let alone the leading combustion engine makers, virtually all of which are producing EVs now.
And that highlights what might be one of the most notable lingering issues for Lucid. As a start-up, it is still spending huge sums of money to build its business. And, thus, it is bleeding red ink. It lost over $3 billion in 2024 alone, up from $2.8 billion the prior year. Hidden in that statement is an interesting issue for investors to consider.
NASDAQ: LCID
Key Data Points
Lucid has a balance sheet dilemma
Although Lucid's net loss widened in 2024, its per-share loss declined. At first blush, that doesn't seem logical until you look at the share count, which rose by nearly 400,000. Essentially, the company was spreading a larger loss over more shares, which had the effect of reducing the loss per share. The loss went from $1.36 per share in 2023 to $1.25 in 2024.
A company selling stock when its share price is down by over 90% is not ideal. Those new shares are diluting current shareholders in a very material way. Despite this fact, Lucid is probably going to go back to the well again in the future. It will likely have no choice given that it is openly telling investors it only has enough liquidity to operate through to the back half of 2026.
In other words, Lucid has a balance sheet problem. The upstart EV maker has a lot of spending that it still needs to do, but it just doesn't have the cash to do it. This is a huge risk for investors. The worst-case scenario is that Lucid runs out of cash and goes bankrupt, as have many other upstart EV makers. The best-case scenario is that it sells more stock to raise the additional cash it needs, which would have the negative effect of further diluting shareholders.
There's also the option of taking on debt. However, that also has its drawbacks, since it would increase the company's ongoing costs thanks to the interest expense that would arise from this move.
There's breathing room, but watch the balance sheet
To be fair, based on Lucid's comments about its liquidity position, it has some time to figure out how to raise more capital. It is worth noting that Rivian was able to partner with Volkswagen to raise cash, so there could be alternatives for Lucid beyond issuing shares.
That said, investors who are considering Lucid and its battered stock should pay as much attention to the company's balance sheet as they do to its operations. If Lucid can't find the cash it needs to keep going, even doubling its production in 2025 won't matter.
