Yahoo Finance Lucid: Great Car, but Poor Financial Situation
The SPAC craze of 2020 and 2021 produced very few winners, but a spectacular number of losers. High-end luxury electric vehicles was believed to be a viable business concept during the special purpose acquisition company heyday of 2021 and Lucid Group Inc. (NASDAQ:LCID) was at the forefront of this movement.
Tesla (NASDAQ:TSLA) vehicles are widely considered to be expensive, at least for the average consumer, but Lucid EVs are clearly in the luxury market with selling price points well above $100,000. Granted, the company has clearly agreed with that and stated its competitors are not Tesla or traditional car manufacturers versions of electric vehicles, but that they compete with Mercedes, BMW and Audi.
Founded in 2007, Lucid designs and builds electric vehicles, power trains and battery systems. EVs are sold direct-to-consumer and through retail outlets. The primary manufacturing facility is located in Casa Grande, Arizona. Expansion activities are underway to bring capacity at the Arizona site to produce 90,000 vehicles per year by 2024. The first vehicle was delivered to customers in October 2021.
Key product offering
Lucid Air is the companys first and primary electric vehicle that is being manufactured and available for sale. Attempting to transform both the luxury car segment and the electric vehicle industry, the sedan has an estimated range of 516 miles on a single charge, which is believed to be the best in the EV industry. This range is enabled by a powertrain that is developed internally by the company. Current Air Touring models are available now in a price range of $128,000 to $135,000. In 2024, the company expects to produce the Lucid Gravity, which is its version of a high-performance luxury electric SUV.
Financial review
The companys financial results have not been pretty since it was founded as it has reported massive losses since inception. The accumulated deficit as of March 31 was approximately $8.1 billion.
For the first quarter, revenue increased substantially to $149.4 million from $57.6 million in the prior-year period. The company delivered 1,406 vehicles in the quarter, or approximately $106,000 per vehicle sold. That is about where the good news ends.
The operating loss increased to $772 million in the quarter from a loss of $597 million in the prior-year period. The cost of goods sold came in at $505.5 million, which means on a simplistic basis, it costs the company approximately $395,000 to build a car that it sells for $106,000. Please no banker jokes about how they will make it up on volume.
Operating cash flow was a negative at $801 million and capital expenditures were $242 million, which created a quarterly cash burn rate of $1 billion. Cash at the end of the quarter was $3.4 billion, making total liquidity of approximately $4.1 billion. The company believes it is adequately funded to support operations until at least into the second quarter of 2024. Total debt at the end of the quarter was $2 billion.
Despite the poor financial results, Lucid remains optimistic about its future. CEO Peter Rawlinson said, We are on track to produce over 10,000 vehicles in 2023, with company-wide initiatives ongoing that will enable Lucid to pivot to higher volumes as market conditions allow. We continue to grow our brand awareness and I'm proud to say that the Lucid Air was recently awarded a number of prestigious industry accolades. We will unveil our Gravity SUV later this year ahead of its launch in 2024 and we cannot wait for everyone to experience it.
Valuation
With no free cash flow for the foreseeable future, it may be hard to use a discounted cash flow valuation process for Lucid. With negative earnings and negative Ebitda as far as the eye can see, not many valuation metrics work at this point.
But Wall Street analysts always find a way somehow. The eight analysts that follow the company have an average price target of $8.64 with a high target of $11.50 and a low target of $5.
Some analysts used a future price-sales valuation looking three to five years out. But with such uncertainty in the levels of sales growth, those valuations are speculative. When the SPAC transaction was announced in early 2021, revenue estimates were $5.5 billion, compared to the $1 billion in revenue expected this year according to consensus estimates.
Guru trades
Gurus who have purchased Lucid stock recently include Philippe Laffont (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio). Investors that have reduced or sold out of their positions include Jefferies Group (Trades, Portfolio) and Steven Cohen (Trades, Portfolio).
Summary
Investors should applaud the entrepreneurial spirit of Lucid's founders and management, as well as their commitment to a clean energy future. But investors need a company to make money and generate free cash flow, which is very far away for the company.
During the SPAC transaction time frame, expectations were to produce $5.5 billion in revenue in 2023, but with only $149 million in revenues in the first quarter and $1 billion expected this year, the company has not executed on its plan.
Lucid clearly depends on the capital markets to survive as cash will likely run out in early 2024. This is a highly speculative investment with an almost binary result. This means if the capital markets do not support the company, the stock is worth zero. If it does receive adequate funding over the next three to five years, then the company could be an enormous success.
This article first appeared on GuruFocus.
