Lucid Group: Buy, Sell, or Hold?
Lucid (NASDAQ: LCID) has received much attention with its luxury electric vehicles (EVs), which boast a driving range well above its competitors. The EV maker made its public stock debut three years ago and sought to challenge Tesla with its upscale offerings.
It has taken Lucid time to ramp up production of its EVs, and the company had to raise capital to ensure it has enough funding to keep things going. The stock peaked in late 2021 at around $58 per share, but has plummeted 95% since then. If you're thinking of buying or holding shares of the beaten-up EV maker, consider the following.
Lucid focuses on luxury electric vehicles
Founded in 2007, Lucid manufactures EVs, explicitly focusing on the luxury niche. The company offers EVs with a more extended range compared to its peers. For example, its flagship Lucid Air Pure model has 430 horsepower, a range of 419 miles, and a price tag of $69,900.
Its Grand Touring, one of its more expensive models at $109,900, boasts a driving range of up to 516 miles, and its fast-charging technology could add 200 miles of range in about 12 minutes.
Reasons to buy or hold Lucid
Lucid stands to benefit from tailwinds in the rapidly growing EV space. According to estimates from Kelley Blue Book, the automotive research company, a record 1.2 million EVs were sold in 2023, a 46% increase year over year and a 143% increase over two years. Government incentives, falling costs, increasing choices, and growing interest in sustainability are all factors driving the increased sale of EVs.
Image source: Lucid Group.
Lucid boasts the furthest driving range compared to competitors, a testament to its battery technology. The company also has significant funding from the Public Investment Fund (PIF), Saudi Arabia's sovereign wealth fund. Since 2018, the PIF has invested $6.4 billion in the company.
For start-ups like Lucid, a steady funding source is crucial to their success as they scale up production and manufacturing. The company currently has $5 billion in available funding, which Lucid says "provides sufficient runway through the Gravity SUV program start of production and into the second quarter of 2025."
The company has also forged a long-term arrangement with Aston Martin, where Lucid will sell its powertrain, battery system, and software technology to Aston Martin. In return, the company received 28 million shares in Aston Martin (valued at $81.5 million at the end of last year) and a cash installment payment of $33 million, with $99 million due over the next three years.
Reasons to sell
Lucid should benefit from tailwinds of growing EV sales, but there are some red flags to consider. The company is still in its early stages, and it will take some time to generate positive cash flow. Last year, the company brought in revenue of $595 million, which decreased 2% from the year before. It also posted a generally accepted accounting principles (GAAP) net loss of $2.8 billion and has lost $10.1 billion in the past three years.
The first quarter showed progress, as the company brought in $173 million while delivering 1,967 vehicles. And while its net loss improved from the same quarter last year, the EV maker still lost $685 million.
LCID Revenue (TTM) data by YCharts
Lucid expects to deliver 9,000 vehicles this year, and the 11 analysts covering the stock expect the company to earn $736 million in revenue this year and $1.74 billion in 2025. Those analysts also expect the company to continue burning money, losing $1.39 per share this year and $1.10 next year. At its current cash burn pace, Lucid will likely have to raise capital by next year, which could further dilute existing shareholders.
Buy, sell, or hold Lucid?
Lucid Group is an exciting company with intriguing technology. Its batteries are efficient, and its range is impressive compared to other EV peers. It also has financial backing from the PIF, which should provide it with enough funding for next year.
That said, it's a risky investment at this stage of the company's life cycle, and it will likely need to keep raising money to fund its operations. Therefore, I think it's best for investors to wait until a path to profitability becomes more visible before buying.
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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
