Lucid Motors (LCID 3.30%) is an exciting business to own a piece of. That, however, may not be a great thing for some investors. In fact, the company's second-quarter results highlighted both the opportunities and the risks of investing in what is, basically, an upstart business. If you are wondering if an investment in Lucid could set you up for life, the answer is maybe -- but only if you can tolerate the risks and uncertainties of owning the shares right now.
The opportunity in Lucid Motors
The big story with Lucid is that it is building an electric vehicle (EV) business from the ground up. It is attempting to use new technologies to break into the mature and competitive automotive sector, much as Tesla (TSLA -0.32%) has already done. The problem for Lucid is that when Tesla leveraged its EVs to become a profitable business, there was almost no competition in that niche. Today, most major automakers and a whole lot of upstarts are vying for a piece of the EV space.
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Simply put, Lucid's path to profitability is going to be much harder. That's not to suggest that Lucid can't get there. Its vehicles have industry-leading battery life, which is a key advantage given that battery life is one of the biggest worries that consumers have about buying EVs. But that edge isn't enough to mitigate the inherent difficulty of breaking into a crowded marketplace. Meanwhile, the company still faces all the natural issues and complexities of ramping up vehicle production.
Lucid's second-quarter report showed both the good and the bad aspects of the business. If you are a conservative investor, the roller-coaster ride this business is taking its shareholders on probably won't feel comfortable for you. If you are an aggressive investor who's willing to buy shares and hold them for the long term, the stock's currently low price could present you with a potentially huge opportunity. But, of course, in order for that opportunity to pay off huge, management will need to execute well.
Pros and cons
On the positive side of the ledger, Lucid increased its vehicle deliveries by 38% year over year in the second quarter. It also inked a partnership with Uber that could see the ride-sharing company deploy as many as 20,000 Lucid Gravity SUVs. The company began offering an adapter that will allow customers to use Tesla Superchargers. And, for those who appreciate media hype, Lucid enlisted Timothée Chalamet as its first brand ambassador. To be fair, the Hollywood star could end up being more of a cost center than a financial benefit for the company, but that's kind of how advertising works.
Based on all that, you could easily conclude that the second quarter was a solid one for Lucid. And the company is, in fact, making progress toward its goals. But there was also negative news in the quarter. For example, while deliveries were up, the company still only produced 3,800 or so cars. That would be barely a rounding error for most automakers. And, perhaps more notable, the company lowered its full-year production guidance from 20,000 to between 18,000 and 20,000. That may not sound like a huge difference, but on a percentage basis, it suggests that Lucid could miss management's original production goal by as much as 10%. That's notable and not good, even though it isn't surprising for an upstart manufacturer to encounter problems as it ramps up production.
And then there's Lucid's ongoing lack of earnings. It lost $0.28 per share in the second quarter. That was an improvement over its $0.34 per share loss in the same stanza of 2024, but it is still bleeding red ink. That's not likely to stop for a long time, as the company is spending heavily to build out its business. In fact, it continues to lose money on every vehicle it makes. It needs to boost its production volume so it can spread its fixed costs over more vehicles, showing the interrelatedness of the problems here.
It's making progress, but not smoothly
Lucid ended the second quarter with roughly $2.8 billion in cash on its books. Add in other sources of capital, like debt, and management says the company has nearly $4.9 billion in liquidity. Simply put, it has the capital to keep moving forward for now. And it is making clear progress as a business, even if that progress can sometimes be lumpy in nature. That's not unusual for a start-up business. The big issue for investors is the possibility that Lucid might not break into the big leagues.
At the end of the day, conservative investors should probably watch Lucid from the sidelines. More aggressive investors with the ability to tolerate the risks may want to step aboard. If Lucid achieves its long-term goals, there could be material upside in its stock. But execution will be key, business volatility will continue, and you'll need a strong stomach to stick around.
