An EV startup
There are several new electric car firms that have emerged in recent years that are competing for the top spot in what will undoubtedly be a significant and protracted switch from combustion engines to electrified vehicles. Some EV start-ups merely attempted to ride the tide of interest for EVs without having a functioning product. But among many others, Lucid Group (NASDAQ: LCID) stood out as a reliable EV business with a marketable product.
The company claims to be on schedule to build up to 7,000 vehicles in 2022 (it hasn’t yet disclosed its annual production rates), and MotorTrend has praised its luxury EV sedan, the Air. Lucid has demonstrated its ability to create automobiles, but the business still has some major obstacles to overcome.
Where will Lucid be in a few years, then? Let’s look more closely.
What’s going on with Lucid at the moment
Since 2021, when Lucid went public via a special purpose acquisition company (SPAC), its share price has decreased by 32%. Along with some company-specific challenges, the overall EV industry also encountered impediments during the period of the significant decline.
First, Lucid must control the increasing cost of EV components, which compelled the business to raise the price of several Air sedan variants in the middle of 2022. More significantly, Lucid’s bottom line is suffering as a result of the growing prices. The EV manufacturer only generated $195.5 million in revenue in the third quarter, suffering a $670 million loss. Through a fresh round of stock sales, Lucid just received extra funds to the tune of $1.5 billion, and more may be on the way.
The business predicted in August that over the following few years, it might raise up to $8 billion through stock offerings. Investors will need to pay close attention to how successfully Lucid uses the $1.5 billion in new cash (and the opportunity to raise more) to reduce the gap between its top and bottom lines.
Along with suffering losses, Lucid also had to make two cuts to its 2022 production guide, reducing it from an initial projection of 20,000 vehicles to a range of roughly 6,000 to 7,000 vehicles. Due to “exceptional supply chain and logistics issues,” the company stated that it had to decrease its production forecasts.
To be fair, other EV start-ups have recently had to lower their production targets as well, but Lucid’s drastic reduction in its production objective indicates that the business is still having trouble expanding its operations.
Where the Lucid Group might be in three years
Predictions are usually difficult to make, but based on the current state of Lucid, there are a few things that might occur during the course of the next three years.
First, as material costs grow, the corporation will probably have to raise the price of EV batteries. Other EV manufacturers will also feel this, but as a young start-up, Lucid may find it more difficult to turn a profit. Battery prices increased by 7% in 2022, and according to BloombergNEF analysis, they won’t start declining once more until 2024.
Additionally, this might compel Lucid to increase the price of its already pricey electric vehicle selection (the Air’s base model starts at $87,400). Although Lucid has no interest in selling cheap EVs, growing material costs might coincide with a possible downturn.
That brings up Lucid’s next obstacle for the following three years: a potential U.S. recession that slows down demand for EVs. According to some forecasters, the United States could experience a recession this year, and any severe slowdown in the economy could reduce demand for Lucid’s high-end EVs.
Increasing inflation and high loan rates will affect their business in 2023 and delay the adoption of EVs over the ensuing few years, according to 76% of car executives polled recently by KPMG.
Of course, the United States could avoid a recession, but even the threat of one could lead EV purchasers to postpone such a pricey purchase.
And finally, over the coming years, Lucid can still experience problems with its vehicle production. The business delayed the release of its forthcoming SUV, named Gravity, to 2024 after missing its initial production guidance for both 2021 and 2022.
Given its relatively poor start over the last two years, the firm is likely to continue to lag behind some of its other EV competitors even if it is able to ramp up delivery numbers and make improvements in production.
This EV stock is not for those who are easily scared.
Lucid Group: Doomed or not? Obviously not. Any EV firm you take a serious look at right now is suffering from high material costs, inflation, the uncertainty of the recession, and supply chain problems.
However, Lucid is currently in a particularly precarious position as it struggles to establish itself in the EV market and contends with all of the aforementioned challenges.
As the business works to address all of these difficulties over the following few years, EV investors should exercise extreme caution when considering purchasing Lucid at this time. The risk is increased by the current price-to-sales ratio of 30 for Lucid’s stock, which makes it unusually costly when compared to EV market leader Tesla, which has a P/S ratio of 5.5.
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