Here are the odds that Lucid will go bankrupt in the next 5 years

Electric vehicle (EV) start-ups offer compelling investment opportunities as the shift away from gasoline vehicles accelerates over the long term. This has been the thesis since many car manufacturers such as The Lucid Group (NASDAQ:LCID) went public in mid-2021 as part of a SPAC merger.

Unfortunately, the growth story did not play out as expected. Companies like Lucid have has faced significant challenges in vehicle development and deliveries, with market uncertainty about the EV transition adding to concerns that a withdrawn consumer could lead to further margin pressure. For companies like Lucid, which are still spending heavily to ramp up production, losing a significant amount of money on each vehicle produced can lead to a death spiral. It seems that many in the market believe that this may be the case, given that LCID stock has lost more than 90% of its value since its previous peaks.

That’s not to say that this stock hasn’t performed well in the short term. Year-to-date, Lucid’s stock price has traded roughly flat and nearly doubled from its April low.

So how likely is Lucid to go bankrupt in the next five years? Let’s discuss.

Key points about this article:

• Lucid is among the early-stage electric vehicle manufacturers many investors are watching closely as market dynamics continue to change in the world of electric vehicles.
• Let’s look at the likelihood that Lucid will still be around in five years and what investors might want to make of this stock.
• If you are looking for action with huge potential, be sure to grab a free copy of ours brand new “Next NVIDIA” report.. It has a software stock where we are sure it has 10x potential.

Lucid’s temporary solutions to his big problems

A Lucid Air vehicle in a showroom with onlookers observing the vehicle

Lucid continues to face the challenge of ramping up vehicle production to reach profitability before the available cash officially runs out. With $3.9 billion in cash, plus $1.5 billion from Saudi Arabia’s PIF, Lucid is safe for 18 months. However, long-term success depends on halting cash consumption, despite recent positive investor sentiment.

The company’s cash burn continues raises concerns about the long-term value of the stock. While the company can raise funds through debt or equity dilution, both options negatively affect shareholders. If Saudi Arabia’s PIF, which has invested $7 billion in Lucid, decides to stop funding the company, Lucid’s survival could be in jeopardy. Thus, there is a real likelihood that investor gains will be limited for investors putting fresh capital to work in this stock at current levels, even if the company ultimately thrives.

Lucid is certainly among the EV stocks at significant risk, with continued dilution and the potential loss of Saudi Arabian support as major concerns. While the company claims superior technology (and I love the look of their vehicles, especially the interiors), the company lags far behind industry leaders like Tesla in terms of production. Even if Lucid survives, achieving the long-term growth necessary for substantial returns remains uncertain, making it a risky investment.

In Q2Lucid delivered 2,394 vehicles, marking a 70% increase over the previous year. This was reflected in deliveries of 2,110 vehicles, with Lucid’s management team targeting 9,000 by the end of the year. Revenue rose 33% year-over-year to $200.5 million, but despite that progress, operating losses of $1.5 billion for the first half of the year are worrying. While that net loss was much improved from the $1.6 billion loss the company reported last year, net cash used in operations is $1 billion, down from $1.5 billion.

Lucid’s CEO remains optimistic

A road sign highlighting the words “optimists” and “pessimists”

Lucid CEO Peter Rawlinson has certainly pushed for novelty with his car launches, with various feature sets that stand out from the competition. The Lucid Gravity SUV is an intriguing concept for sure, and one that many bulls remain confident will gain traction in the market.

This EV is now in the verification phase and follows the company’s Air Sedan in the market. Known for its impressive range, the Air has won a number of quality awards, offering more than 500 miles on a single charge. There are no large-scale EV manufacturer cones close to this performance.

Unfortunately, starting price tags for Air models with Grand Touring came in at over $110,000, but the more affordable $69,900 Air Pure could gain more traction with cost-conscious consumers. This vehicle has a range of 420 miles and is among the most efficient in its class. So still not bad for the price.

I think Lucid will have to continue to market their vehicles properly to the right group and see word of mouth traction from existing owners. Like Tesla and Rivian, which have enjoyed strong grassroots support, investing in this company is based on positive long-term consumer trends as well as some beneficial secular growth trends.

There are certainly reasons to be bullish on Lucid right now, but the question is how investors will view the company beyond the product itself.

Best to avoid LCID stocks right now

A chart of the stocks heading below

History is littered with a large number of failed EV startups. Perhaps the most prominent recent example of an early-stage electric vehicle company with promise that went bankrupt is Fisker. And while Lucid has Saudi backing and significant cash that should last a few years, there are indeed manufacturing concerns and other issues that could come to the fore. Basically, if the Saudi PIF pulls funding from this project, most investors would consider the story over.

Trying to reduce the likelihood of bankruptcy with any company is difficult. I will say that Lucid has a premium product that is attractive. But given the various recessionary signals we’re seeing in the market, it’s unclear to me whether Lucid can survive a prolonged recession (say two or three years) that wipes out consumer demand for higher-priced EVs. I’d say there’s a 50/50 chance that Lucid will either go bankrupt or prosper over the next five years, so this is a stock that some investors may want to play with caution from here.

The post Here’s the Chances Lucid Will Go Bankrupt in the Next 5 Years appeared first on 24/7 Wall St.