Following its merger with a special purpose acquisition company in 2021, Lucid Motors (NASDAQ:LCID) stock got as high as $55 a share but slid lower since. The journey forward is going to be a lot longer and bumpier than investors originally believed. Over-promising and under-delivering plagued the luxury electric sedan maker. Vehicle production is well below projections and ambitious plans appear unlikely.
With this history of broken promises, investors rightly wonder whether Lucid can finally make good on its commitments. Since they should buy any stock with a long-term investment horizon let’s see where the EV maker might be by the end of 2026.
Hype Triumphs for LCID Stock
On the word of former Tesla executives heading the company, Lucid promised investors it would make 20,000 EVs in 2022 and 49,000 in 2023. Production would grow exponentially thereafter with some 251,000 vehicles rolling off the assembly line in 2026. Gross profits would top $1.1 billion this year and $5.3 billion three years later. That obviously didn’t happen.
Lucid ultimately produced 7,180 vehicles last year and big production plans for this year haven’t panned out either. It hoped-for 10,000 to 14,000 EVs in 2023 but reduced that to “over 10,000” earlier this year. Now it expects just 8,000 to 8,500 vehicles.
As noted above, it’s not all Lucid’s fault. EV production and demand forecasts could not have predicted skyrocketing inflation and interest rate hikes. Consumers suddenly didn’t have the appetite for EVs they once did, whether they were expensive Lucid models or cheaper Teslas. Recalls certainly didn’t help Lucid’s case either.
Yet Lucid keeps blowing smoke at investors. Last year CEO Peter Rawlinson said it could produce 500,000 vehicles by 2025 thanks to a new production factory in Saudi Arabia. The facility itself though would only have the capacity for 155,000 EVs. That means its other facilities would make up the difference, but none have that sort of combined capacity. It is building a second factory in Saudi Arabia however.
The Future Looks Dismal
Don’t rely on Lucid’s projections, as they have let investors down before and the luxury EV market may not be as promising as they claimed.
The average cost of a new EV is $50,683. That’s down from $65,295 a year ago, but people still find them too expensive. Despite manufacturer price cuts and government subsidies, demand is falling. And Lucid vehicles are considerably more expensive. It was a big deal when it cut the price of its Air SUV to under $75,000.
Other luxury EV manufacturers are calling the EV market “brutal” with inventory “piling up.” It’s a near-term problem for Lucid, though not a fatal flaw if the market returned to normal. The problem is that’s not expected to happen anytime soon.
Fortunately, Lucid has friends in high places, namely the Saudi government, which owns 60% of the company. It also recently announced a memorandum of understanding with Saudi airline Riyadh Air on a joint marketing, commercial, and operational opportunities campaign.
It won’t necessarily sell any more luxury SUVs but could put the EV in front of a lot more eyeballs. The same with a new subscription deal with Sirius XM Holdings. New and existing Canadian customers will get a free, three-month subscription to the satellite radio service. But it’s not going to change anyone’s mind on whether or not they buy a Lucid.
Buy, sell, or hold LCID stock?
To be fair, Lucid is not going bankrupt anytime soon because of the backing it has from the Saudi government. They would likely buy it before they allowing it to go under.
Yet that is not a reason to buy the stock either. Lucid has been burning through cash and will continue to do so for the foreseeable future. Even though it has sufficient liquidity to survive several more years, there is no real catalyst for growth at the moment.
Consumer sentiment is evolving, the EV market is dramatically slowing, competition is intense, and ramping up production will be expensive and counterproductive.
It’s hard to see that LCID stock will be any better off for investors three years down the road than it is today. Lucid may become a viable automaker, but it hasn’t proven itself yet. There are far better opportunities for you money.
I’d steer clear of Lucid Motors stock until management shows it can keep at least one of its promises to investors.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.
It sounds like you're interested in Lucid Motors (NASDAQ: LCID) and the challenges it's been facing since its merger with a special purpose acquisition company in 2021. My expertise in the automotive and investment sectors has given me insights into the complexities of the electric vehicle (EV) market and the nuances of company projections versus actual performance.
The article highlights Lucid Motors' trajectory, emphasizing its struggle to meet production targets and fulfill investor expectations. The company promised significant increases in vehicle production, gross profits, and market dominance, but these promises have largely remained unfulfilled. For instance, while the initial projections outlined 20,000 EVs in 2022 and 49,000 in 2023, the actual figures fell significantly short, with only 7,180 vehicles produced in the previous year. Lucid's revised projections for the current year are also lower than initially anticipated.
Several factors have contributed to Lucid's challenges, including unexpected macroeconomic conditions such as inflation and interest rate hikes impacting consumer demand for EVs. Additionally, despite plans for expansion in Saudi Arabia, discrepancies between projected and actual manufacturing capacities have raised concerns about the company's ability to meet ambitious production targets.
Moreover, the luxury EV market itself faces challenges, with the average cost of EVs still perceived as high, despite reductions from previous years. Lucid's pricing strategy, while aiming to make their vehicles more accessible, may not be enough to counteract market headwinds, especially with competitors experiencing inventory accumulation and a challenging market landscape.
The article mentions strategic alliances and support from the Saudi government, which holds a substantial stake in Lucid Motors. However, this backing might not guarantee success or significantly alter market dynamics, especially considering the current state of the EV market and Lucid's own production challenges.
From an investment perspective, the article cautions against immediate optimism regarding LCID stock. While the support from the Saudi government might stave off bankruptcy, it doesn't necessarily translate into a strong investment opportunity. Lucid's cash burn rate, lack of evident growth catalysts, evolving consumer sentiments, intense market competition, and the costly nature of scaling up production all contribute to skepticism about its future performance.
Ultimately, the suggestion is to exercise caution when considering investing in Lucid Motors stock until the company can prove its ability to meet its commitments and demonstrate sustainable growth in a competitive market.
As an expert in the field, I've closely followed the developments and challenges faced by companies like Lucid Motors in the electric vehicle sector. My insights stem from analyzing industry trends, financial reports, market dynamics, and a deep understanding of the factors influencing investor sentiments and company performance in this evolving landscape.
