People test drive Dream Edition P and Dream Edition R electric vehicles on the Lucid Motors plant in Casa Grande, Arizona, September 28, 2021.
Caitlin O’Hara | Reuters
Luxury electric vehicle maker Lucid appears to have a requirement problem.
The corporate said during its fourth-quarter earnings report Wednesday that it had “over 28,000” reservations for its Air sedan as of Feb. 21. That was a surprise, provided that the corporate had claimed “over 34,000” reservations in November and delivered fewer than 2,000 vehicles within the fourth quarter.
Much more surprising: Lucid said it plans to construct just 10,000 to 14,000 vehicles in 2023, far fewer than the roughly 27,000 Wall Street analysts had expected — and than the roughly 34,000 vehicles per yr that Lucid’s factory is about up to construct.
Shares of the corporate have sold off almost 17% for the reason that Wednesday report.
Lucid faced a rough road getting the Air into production. The corporate spent much of the primary half of 2022 scrambling to secure key components and untangling logistics snags. Now, with production running kind of easily, it appears to be facing a latest problem: Not enough of those reservations are converting to orders.
CEO Peter Rawlinson acknowledged as much through the earnings call when he reminded listeners that reservations aren’t binding.
“We have solved production. That shouldn’t be the gating issue here now,” Rawlinson said. “My focus is on sales. And here’s the thing. We have what I feel to be the highest product on the earth. … Too few individuals are aware of not only the automotive, but even the corporate.”
Rawlinson went on to say he believes that to be an “entirely solvable problem” and plans to deal with “amplifying customer awareness” in 2023.
More marketing might help. But clearly, demand for Lucid’s vehicles is not materializing as quickly as the corporate expected, which raises some tough questions for investors.
First, how big is Lucid’s potential market? Any estimate of how much Lucid could grow has to start out with an estimate of the “total addressable market,” and it appears the corporate’s estimates on that front can have been too rosy, provided that its factory is about up to provide many more vehicles than it’s constructing now.
Running an auto factory well below capability is not exactly a path to profitability, as Chief Financial Officer Sherry House conceded during Lucid’s earnings call.
“As we produce vehicles at low volumes on production lines designed for higher volumes, we’ve got and we are going to proceed to experience negative gross profit related to labor and overhead costs,” House said.
That results in a second, related query: How long will Lucid need to run its factory at a loss? Or, put one other way, how long will it take Lucid to get to profitability — and the way much money will it need to raise between every now and then?
Bank of America analyst John Murphy has long been bullish on Lucid, but in a note to investors following Lucid’s earnings report, he cut the bank’s rating on the stock to carry, from buy. Murphy wrote that he now thinks Lucid won’t break even before 2027, and that the corporate might want to raise more capital ahead of he had previously expected.
The excellent news is that Lucid has a deep-pocketed investor. Saudi Arabia’s Public Investment Fund owns about 62% of Lucid, and has shown — most recently in December, when it invested a further $915 million — that it’s still willing to fund the corporate. So long as it has the Saudi fund’s backing, Lucid should have the opportunity to maintain going.
However the road to profitability — and to a giant payday for Lucid’s investors — is now looking longer.