Lucid is down roughly 95% from its best price but could have explosive potential. Is the EV maker a worthwhile investment?
Lucid (LCID 0.77%) went public through a merger with a special purpose acquisition company in July 2021. The electric vehicle (EV) specialist's share price rocketed higher shortly after its public debut thanks to some encouraging announcements about production and demand for its vehicles.
The company was challenging Tesla with upscale vehicles that offered even better performance on some key fronts. But Lucid's share price has since fallen dramatically.
The company's stock is now down approximately 95% from its post-merger peak and has a market capitalization of roughly $6.9 billion. For a $15,000 investment to make you a millionaire, Lucid stock would have to climb roughly 67 times above current levels. Assuming the company's share count held constant, the EV upstart would have a market capitalization of roughly $462 billion at that price.
In other words, a $15,000 investment in Lucid stock could make you a millionaire if its valuation climbed to a little under 70% of Tesla's current $665 billion market cap. Is there a feasible path for it to deliver returns on that level?
What are Lucid's strengths?
Lucid got its start as a maker of battery technologies in 2007 and then pivoted to designing its own luxury electric sedans in 2016. The company's first Lucid Air vehicles were delivered in October 2021, and the business' strong pedigree in battery tech was immediately apparent.The Environmental Protection Agency rated the EV at a travel range of 520 miles on a single charge. For comparison, the 2024 Model S Long Range from Tesla has an estimated range of 405 miles per charge.
In addition to a best-in-class travel range, Lucid's vehicles won rave reviews for their handling, design, and various amenities. Its EVs have won top honors in the luxury category from sources including Car and Driver, U.S. News & World Report, and MotorTrend.
With Lucid catering to the luxury market and pricing its vehicles above most other players in the EV space, the potential is there for the business to command margins that are significantly above auto industry norms. But investors should understand that achieving profitability and continuing to expand its margins depends on leveraging economies of scale that would come from growing the business far above its current size.
Lucid has shaky financials
Across the first three quarters of 2023, Lucid posted an operating loss of $2.36 billion on revenue of roughly $438.1 million. Meanwhile, the business closed out the period with cash, equivalents, and short-term investments totaling approximately $4.42 billion.
For Lucid to begin posting profits, the business will need to dramatically expand the number of vehicles it produces and delivers to customers. Unfortunately, recent growth has fallen short of expectations.
Missed performance targets
Last February, Lucid management laid out performance targets for 2023. At the time, the company said that it expected to produce between 10,000 and 14,000 vehicles in the period. But when the EV specialist published 2023 first-quarter results in May, it's guidance implicitly became more cautious: It now expected to produce more than 10,000 vehicles in the year.
When the company published its performance update for 2023 earlier this month, it announced that it had produced just 8,428 vehicles. Last year's production figures were up only 17.4% on an annual basis.
Deliveries grew a more-impressive-looking 37.4% to reach 6,001 vehicles, but there are signs that demand is weakening.
The launch of the company's Lucid Gravity SUV later this year should provide a performance boost, but the recent business trajectory is troubling.
The risk of stock dilution
Lucid's large operating losses mean that the business will likely need to raise funds soon. The company has repeatedly sold shares to Saudi Arabia's Public Investment Fund (PIF), which now owns roughly 60% of the company.
There's a good chance that Lucid will continue to sell new shares to the Saudi PIF or other large institutional investors to raise operating capital.
LCID shares outstanding; data by YCharts,
With the company currently valued at approximately $6.9 billion and posting annual operating losses at a roughly $3 billion rate, there's a big risk of stock dilution. That means the shares purchased today will likely come to represent a much smaller piece of the ownership pie, which could have the effect of sending their price lower.
How likely is Lucid to be a millionaire maker?
Lucid is a troubled business even though it produces great EVs. As it stands, the odds of the stock turning a $15,000 investment into $1 million are exceedingly slim -- even over a long period of time. In the near term, the company's share price will likely continue to be volatile.
With the stock trading at such beaten-down prices, it is possible that the shares will see significant gains above current levels. If growth in vehicle production and deliveries reaccelerates and suggests that the business could be back on the path to achieving profitability, Lucid's valuation could see a substantial rebound.
However, investors should approach the stock with the understanding that the company's financial foundations are shaky, and there's a substantial risk the company's stock will move lower on the heels of massive sell-offs.
Keith Noonan 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.
