Despite coming into the second quarter with momentum after a number of consecutive quarterly sales records, Lucid Group (LCID 0.32%) was the latest electric vehicle (EV) maker to pump the brakes on expectations. Lucid, among its competitors, is driving through tricky waters when it comes to navigating tariffs, removal of the federal EV tax credit, and the loss of regulatory credit sales.
One saying rings true for Lucid though: Volume solves all problems. More specifically, Gravity SUV production volume will solve all problems. Here's why.
Q2 recap and speed bumps
Automakers around the globe are navigating choppy waters when it comes to increasing costs due to tariffs. Lucid started things off by trimming its full-year production outlook, making Lucid only the latest automaker casualty to pump the brakes after tariff and trade policy changes.
The automaker now expects to produce between 18,000 and 20,000 EVs in 2025, down at the midpoint from its earlier forecast for 20,000 vehicles. Revenue of $259 million fell short of Wall Street estimates, as well as its adjusted loss of $0.24 per share, which was worse than the $0.22 per share loss consensus estimate.
Image source: Lucid.
Regulatory credit loss
Adding to Lucid's pain is the loss of regulatory credit sales. Essentially, automakers that produce EVs were given credits for their production, while automakers producing vehicles that didn't meet emissions standards were fined. One way to avoid the fine was to simply purchase regulatory credits from automakers with a surplus, such as EV-only automakers like Lucid.
That was until the Trump administration removed the fine for vehicles not meeting emissions standards, effectively and immediately removing any incentive to purchase regulatory credits, shutting off a valuable chunk of business for EV makers such as Lucid.
Volume solves problems
What Lucid needs is a good dose of volume! More specifically, Lucid desperately needs to ramp up the production of its Gravity SUV, which has been in low production since launching. It's important because the $7,500 federal EV tax credit is set to disappear on Sept. 30, effectively pulling forward demand from those on the fence to get in before the discount is removed. That means there will be a roughly equal power lull during the fourth quarter, so the sooner the Gravity is producing at full capacity, the better.
Unfortunately, things haven't gone exactly to plan. "This is something I've said before, and I say it again, we're not where we want to be with the Gravity at this time of the year. We actually wanted to be ahead, making significant ... progress every day," Lucid CEO Marc Winterhoff said in an interview with Yahoo! Finance shortly after Q2 earnings.
On the bright side, Lucid does expect production to ramp up drastically during the second half of the year. But to meet its lofty goal of 18,000 to 20,000 vehicles it would need a serious acceleration. Consider that Lucid produced only 6,075 vehicles during the first half of the year. To meet expectations Lucid would have to pull forward the launching of a second shift at its Arizona Factory.
NASDAQ: LCID
Key Data Points
What it all means
One of the major developments to watch with Lucid is the company's fight to become gross profit positive, which rival Rivian Automotive accomplished in both the fourth and first quarter. The problem is investors might not see desired progress in gross profits during 2025, depending on the countermeasures Lucid unleashes during the fourth quarter to help offset the lull following the pull-ahead in demand. Those discounts and incentives can be costly.
Ultimately, despite a less than glamorous second-quarter report, Lucid still has momentum and is well-positioned with production of its Gravity accelerating as we speak. But long-term investors would be wise to anticipate a bumpy few quarters as the industry, and consumers, grapple with changes in pricing due to tariffs and trade policy.
