Lucid, a Luxury EV Manufacturer, Seems to Be Having a Demand Issue

Lucid, a Luxury EV Manufacturer, Seems to Be Having a Demand Issue
  • Luxury electric vehicle maker Lucid said during its fourth-quarter earnings report that it had “over 28,000” reservations for its Air sedan as of Feb. 21, down from “over 34,000&reservations for the top; in November.
  • Despite factory capacity for more production, it only intends to produce 10,000 to 14,000 vehicles in 2023.
  • Since its earnings report, Lucid stock has fallen as concerns about demand caused investors to become uneasy.

Luxury electric vehicle maker Lucid appears to have a demand problem.

The company said during its fourth-quarter earnings report Wednesday that it had “over 28,000” reservations for its Air sedan as of February 21. That was a surprise, given that the company had claimed “over 34,000&Less than 2,000 vehicles were delivered during the fourth quarter of Prime’s November reservations.

Even more unexpected: According to Lucid, it only plans to produce 10,000 to 14,000 vehicles in 2023, far fewer than the approximately 27,000 Wall Street analysts had predicted and the approximately 34,000 vehicles per year that Lucid’s factory is designed to produce.

Since the report on Wednesday, the company’s shares have decreased by about 15%.

Putting the Air into production presented challenges for Lucid. The first half of 2022 was largely consumed by the company’s frantic search for crucial components and attempts to sort out logistical hiccups. After a period of largely trouble-free production, it now appears to be dealing with a new issue: not enough of its reservations are turning into orders.

During the earnings call, when he emphasized that reservations aren’t legally binding, CEO Peter Rawlinson made this point clear.

“Production is now fixed. That is not the gating issue here now,” Rawlinson said. “Here’s the thing: We have what I think is the best product in the world, but my focus is on sales. … Too few people are aware of the business or even the car.”

Rawlinson went on to say he believes that to be an “entirely solvable problem” and plans to focus on “amplifying customer awareness” in 2023.

It might be beneficial to increase marketing. But it’s obvious that demand for Lucid’s vehicles isn’t materializing as quickly as the company anticipated, which poses some difficult questions for investors.

First, how large is the potential market for Lucid? Any estimate of how much Lucid could grow has to start with an estimate of the “total addressable market,” and it appears the company’s estimates on that front may have been too rosy, given that its factory is set up to produce many more vehicles than it’s building now.

In the Lucid earnings call, Chief Financial Officer Sherry House acknowledged that operating an auto factory well below capacity isn’t exactly a path to profitability.

“As we produce vehicles at low volumes on production lines designed for higher volumes, we have and we will continue to experience negative gross profit related to labor and overhead costs,” House said.

How long can Lucid operate its factory at a loss before it runs out of money? Or, to put it another way, how long will it take Lucid to become profitable and how much money will it need to raise in the interim?

Despite being a longtime supporter of Lucid, Bank of America analyst John Murphy downgraded the stock from buy to hold in a note to investors after Lucid’s earnings report. Murphy stated that he has changed his opinion and believes Lucid won’t become profitable until 2027, which means the business will require more funding sooner than he had anticipated.

The good news is that Lucid has a wealthy investor. About 62% of Lucid is owned by Saudi Arabia’s Public Investment Fund, which also demonstrated its willingness to continue supporting the business by investing an additional $915 million in December. Lucid ought to be able to continue operating as long as it has the support of the Saudi fund.

However, it now appears that the path to profitability—and to a sizable payout for Lucid’s investors—will be more difficult.


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