Is Lucid stock a buy after better-than-expected earnings?

Actions of manufacturer of electric vehicles Lucid (LCID -1.25%) have had a mostly downward ride since the company’s market debut, falling more than 90% from their 2021 price peak.

However, the company has made substantial progress since 2021. Its first model, the Air luxury sedan, has received wide acclaim. A large SUV will join the lineup by the end of this year.

Lucid’s second-quarter results — reported Aug. 5 — were better than expected, but it’s still far from profitability. But he has a plan to get there and a big investor with deep pockets.

Is that enough to make the stock a buy?

Lucid Air has some of the best EV technology in the business. Sales have been modest so far, but an upcoming SUV should help. Image source: Lucid Group.

Lucid Bull Case: Best-in-class EV technology

Lucid says it makes the most efficient electric vehicles. The data largely backs that claim up: In the base “Pure” trim, the 2025 Lucid Air sedan is rated at 146 MPGe, or “miles per gallon equivalent,” the U.S. Environmental Protection Agency’s standard for comparing electric vehicle efficiency. The next closest competitor, Lucid says, gets just 122 MPGe.

This isn’t just a technological bragging point. Higher efficiency — a function of both battery chemistry and the software that controls the EV battery — means an EV maker can use fewer battery cells to provide a given range.

Considering that an electric vehicle’s battery pack can account for up to half of the total cost of materials, reducing the size and cost of the pack makes a big difference in the cost of the car.

At least in theory, that means an EV maker with a more efficient battery can deliver a given vehicle at a lower cost than rivals. The cost difference can be used to lower the price, increase the automaker’s profit, or both.

That’s a clear competitive advantage — one that Lucid hopes to license to major automakers that may not be able to develop as efficient batteries in-house. (This is no illusion on Lucid’s part: he already has one agreement to provide EV technology for the British supercar manufacturer Aston Martin.)

Of course, Lucid will have to scale up significantly to realize this advantage in any meaningful way with its own electric vehicles. And while he has a plan to do that, the plan requires two things that Lucid may or may not have: time and a lot of money.

The Case of the Lucid Bear: Burning Cash Makes It Vulnerable

For Lucid, time and money are closely related variables. The company is burning cash in an effort to grow to a sustainably profitable size. For example, Lucid’s revenue in the second quarter of 2024 was about $200.6 million — but the cost of that revenue was $470.4 million.

As Lucid’s sales volume increases, economies of scale will help turn losses into profits. But even in the best case scenario, that point is probably still a few years away.

Right now, Lucid’s cash reserve at any given time is a measure of how long the company will be able to keep the lights on. At the end of the second quarter, Lucid’s cash and available lines of credit totaled approximately $4.28 billion. That was boosted earlier this month by a $1.5 billion commitment from Lucid’s largest investor, an affiliate of Saudi Arabia’s Public Investment Fund (PIF).

During Lucid’s earnings call on Aug. 5, CFO Gagan Dhingra said that with the new funds from PIF, Lucid had enough to fund operations “at least through the fourth quarter of 2025.”

But what happens after that?

The question mark: how much more are the Saudis willing to invest?

A better way to ask this question might be, “How much more is PIF willing to invest in Lucid?”

PIF, which owns about 60 percent of Lucid, is by far the electric vehicle maker’s largest investor. Including that recent $1.5 billion, which followed a separate $1 billion investment earlier this year, PIF has about $7.9 billion invested in Lucid from 2018.

That’s a lot of money for a stake in a money-losing EV startup. On the other hand, PIF is a huge fund, with about $925 billion under management and a mandate from the Saudi government to help advance an economic agenda aimed at weaning the country’s economy off oil.

PIF can easily afford to keep Lucid going as long as the company has a clear path to profitability. Right now, with development of that upcoming midsize model underway and a plan to enter into partnerships with more established automakers, it does.

Is Lucid stock a buy?

As I see it, there are three likely paths for Lucid from here.

1. It receives additional additional investment from the PIF as required, executes its plan and becomes sustainably profitable in a few years.
2. It is acquired by a major global automaker that wants Lucid’s team and advanced EV technology.
3. It gets additional investment from PIF and messes around for a while, but never breaks even — and eventually the Saudis pull the plug and Lucid goes under.

Overall, I think that makes it a risky purchase. If you’re investing in Lucid stock now, the first two paths will almost certainly pay off if you’re patient.

Note that the third way is a real possibility and increase your investment accordingly.