Long-term investing is the key to epic returns in the stock market. But this strategy can also expose your portfolio to staggering losses if you bet on the wrong company at the wrong time.
Early investors in Lucid Group (LCID 7.87%) know this lesson well. Shares in the electric vehicle (EV) start-up have shed an eye-popping 90% of their value since their special purpose acquisition company (SPAC) was listed in 2020.
The embattled automaker continues to struggle with lackluster growth and spiraling losses. That said, there might finally be light at the end of the tunnel. Let's explore how Lucid's exciting long-term growth catalysts could play out over the next decade and beyond.
Has the turnaround already started?
Lucid is still in a difficult position, but there are early signs that its turnaround may already be starting. Third-quarter revenue jumped 68% year over year to $336.6 million, driven by record production and delivery figures. And while the rest of the EV industry is buckling under the Trump administration's withdrawal of EV tax credits, Lucid hasn't missed a beat.
NASDAQ: LCID
Key Data Points
Lucid's fourth-quarter deliveries jumped 72% compared to the prior year period and 31% compared to the third quarter. For comparison, Tesla and Rivian Automotive saw fourth-quarter deliveries decline by 16% and 26%, respectively, mainly because of the loss of U.S. EV tax credits in October. Lucid's demand may be immune to this challenge because its high-end vehicles were generally too expensive to qualify for the incentive.
Despite the good news, Lucid isn't out of the woods yet. The company still faces challenges from extreme cash burn, with third-quarter operating losses surging 22% to $942 million. This is an astounding amount of money for a company with a market cap of $3.3 billion to lose in a three-month period. And it puts investors in a very uncomfortable position as they wait for the turnaround to pick up steam.
The Saudi Arabian connection
Lucid's cash burn makes its equity unattractive for large private sector investors. But the company's relationship with Saudi Arabia's Public Investment Fund (PIF) could give it an important lifeline. The oil-rich kingdom is trying to diversify its economy away from fossil fuels, and it sees Lucid as an important tool toward achieving this goal.
SEC filings reveal that the PIF now controls 64% of Lucid's shares, making it the majority owner. And as a government entity, the PIF has interests beyond simply making money. This dynamic can help regular retail investors sleep easier knowing that Lucid has a powerful backer willing to absorb its losses even when it doesn't make immediate financial sense.
Image source: Getty Images.
Recently, the PIF gave Lucid access to a credit line (called the delayed draw term loan credit facility), giving it an additional $2 billion in liquidity. Saudi Arabia is also supporting Lucid's business through a commitment to purchase up to 100,000 vehicles over 10 years. The company delivered 1,000 vehicles to Saudi Arabia in the third quarter. And investors can expect this opportunity to scale up substantially in the next few years.
What will the next 10 years bring?
While Saudi Arabia can keep Lucid's struggling operations afloat in the near term, the company's long-term success will depend on its pivot to new growth drivers. The most exciting opportunity will be moving toward the mass market with vehicles like the Gravity SUV and other affordable models like the Lucid Earth, expected to start at $48,000, with production starting this year and deliveries following soon afterward.
Lower-priced vehicles will open Lucid up to a much wider consumer opportunity and unlock economies of scale advantages, potentially allowing it to grow out of its current challenges. The company has also been selected as the partner for Uber Technologies' autonomous taxi program, which could offer even more opportunities for expansion.
The next 10 years will be challenging, but Lucid looks capable of rewarding patient investors.
