The Lucid Group: Buy, Sell or Hold?

Lucid Group (LCID 9.09%) is a new electric vehicle (EV) maker that has attracted a lot of investor attention since merging with a special purpose acquisition company (SPAC) three years ago. The electric vehicle manufacturer boasts a range far beyond its competition and aims to take on companies such as adze with his luxury vehicles.

Lucid will benefit from the growing demand for electric vehicles, but it has taken some time to start producing them. That raises another concern: It has repeatedly raised capital to ensure it has enough funding to keep moving forward. If you’re considering an investment in the young electric vehicle company, consider the following facts first.

Lucid’s technological advantage

Lucid Group has several advantages. First, it focuses on the production of luxury vehicles. By focusing on creating a premium brand, Lucid wants to attract a customer base that is more resilient to economic cycles. To do this, it aims to provide its customers with a high-quality experience, but building an enviable brand from scratch takes time.

Another key selling point for Lucid is that its vehicles offer a wider range than its peers. Its flagship Lucid Air Pure model, which costs $69,900, has a range of 420 miles and 430 horsepower. The Grand Touring, one of its more expensive models, costs $110,900 and has a range of up to 512 miles. Its fast charging technology could add 200 miles of range in 12 minutes.

Image source: Lucid Group.

Lucid has a technological advantage over competitors, but the business side has taken some time to develop. When it first went public, the company projected 49,000 vehicle sales by 2023. Those goals turned out to be a bit too optimistic. Last year, the company sold 6,000 vehicles and pushed back the launch date of its second vehicle, the Gravity SUV, by a year.

Production is growing, but it continues to burn cash

Lucid delivered 2,394 vehicles in the second quarter, a 70% increase over last year. It also produced 2,110 vehicles in the quarter and is on track for 9,000 vehicles by the end of this year. Its Lucid Air sales are moving in the right direction, and in Q2, it had revenue of $200.5 million, up 33% year-over-year.

That said, the company’s cash burn rate is a primary concern. For the first six months of this year, Lucid’s loss from operations is $1.5 billion, a modest improvement from last year’s $1.6 billion loss. Meanwhile, net cash used in operating activities was $1 billion, which improved from last year’s $1.5 billion.

LCID Revenue (TTM) data by YCharts.

Funding and liquidity are vital for young upstarts like Lucid. Last month, the company received positive news when the Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund, invested another $1.5 billion in the electric vehicle maker.

The cash injection brings PIF’s investment in Lucid to about $7.9 billion as of 2018 and shows the fund’s long-term commitment to the EV company. According to management, the move pushed Lucid’s liquidity to $4.28 billion, extending its cash runway through the end of 2025.

Buying, selling or owning the Lucid Group?

Lucid Group is an exciting company that has developed an exciting battery technology that pushes the boundaries of electric vehicles as we know them. Last year, a long-term arrangement was reached with Aston Martingiving it access to its propulsion system, battery system and software technology. In return, Lucid received 28 million Aston Martin shares and a cash payment in installments of $33 million, with $99 million due over the next three years.

The company will benefit from long-term headwinds for electric vehicles. According to forecasts from consulting firm PwC, the number of electric vehicles in the US could reach 27 million by 2030 and 92 million by 2040. If Lucid can gain ground and generate positive cash flows, it has a real chance to grow rapidly in addition to it. market.

The company is taking steps to cut costs and improve margins. That said, it will likely require additional investment from PIF to keep things going, and investors will want to continue to monitor its progress in terms of sales and production, along with cash burn. One thing I’d like to see is a clearer path to profitability for the luxury electric vehicle maker. Until then, investors can afford to wait patiently on the sidelines with this stock.