Analysis of Lucid’s 2023 Results

This week, the two COVID EV darlings, Lucid and Rivian reported their 2023 full year results.  I will cover Lucid in this article and come back to Rivian shortly.  Lucid caught my attention due to the EV technology agreement it signed with Aston Martin Lagonda (AML) in 2023.  Both Lucid & Rivian IPO’ed in 2021 and have been developing Electric Vehicles since the mid 2010’s.  Lucid stock peaked at $55.21 in November 2021 and is currently trading at $3.00 per share.  Over the same period, Rivian stock has crashed from a high of $129.95 to $11.16.  Both have the very rare honor of making AML look like a better investment over the same period. The question is why, what has happened, and what does the future look like.

 

I went through the transcript of Lucid’s earning call expecting to hear the CEO, Peter Rawlinson, talking about a company in crisis that’s taking urgent steps to turnaround the business.  Instead, what I heard about was a lot about industry accolades, technical prowess, and the beginning of a transformational phase as they expand their vehicle line up.  This was topped off with comments on growing brand awareness, coupled with confidence in the sales and marketing programs.  Buried in the middle of Rawlinson’s opening monologue was one short paragraph on cost control and later a brief comment on a few challenges, most of which are blamed on either external factors, or were expected, and have been overcome.   There was no comment on the fact that they lost nearly $3 billion in 2023 and missed the low end of their 2023 vehicle produced guidance by 16%.

According to Lucid, these are their 2023 highlights:

 

  • Lucid Air continued to garner significant industry accolades with the Car and Driver’s10 Best list for 2024, following the previous 2023 World Luxury Car of the Year and 2022 MotorTrend Car of the Year awards.

 

  • Unveiled the Lucid Gravity at a special launch event at the LA Auto Show; Lucid Gravity is a transformational vehicle taking Lucid to its next critical stage of growth.

 

  • Delivered Lucid Air Sapphire, the world’s first luxury electric super-sports sedan; extended technology lead with Pure achieving 4.74 mi/kWh.

 

  • Opened Saudi Arabia’s first-ever car manufacturing facility (AMP-2) and invested in the next phase of growth with the initial AMP-1 Phase 2 expansion.

 

  • Established Lucid Group’s technology arm with the signing of the first strategic technology arrangement with Aston Martin.

 

Lucid’s highlights are noticeably lacking in terms of celebrating any growth or financial milestones.  Probably shouldn’t be a surprise though given the CFO resigned in Dec. 2023.  Looking into the numbers:

  • Full Year Key Results: The key numbers for Lucid in 2023 were 8,428 cars produced, (up 17% vs. 2022), cars delivered 6,001 (up 37% vs. 2022). Net Revenues of $595 million (-2% vs. 2022), and net loss of $2,828 million (vs. loss of $1,305 million in 2022).  Selling, Administrative, and General (SG&A) expenses were also up 13% in 2023 to $937 million.  Free Cash Flow was negative $3,400 million vs. a negative $3,301 million in 2022.  Net loss per car delivered rose in 2023 to $471,000 from $299,000 in 2022.  In the earnings call, Rawlinson stated: “We are resolutely focused upon cost whilst continuing to prudently invest for the future.”  Certainly, I am not sure the first half of that sentence is coming through very clearly here.   

 

  • Financial Viability: Cash and short-term investments were $3,860 million at year end 2023, basically flat vs, year end 2022. Long term debt is currently just under $2 billion, also flat vs. prior year.  At its cash burn rate over the last 2 years, Lucid would appear to currently have enough liquidity to cover its needs into early 2025.  However, Lucid is projectioning Capex of $1.5 billion in 2024, which is up $600 million vs. 2023.  As Lucid’s net cash used in operating activities actually increased in 2023 vs. 2022 to $2,490 million, how they expect to cover the increase in Capex while not increasing the cash burn is unclear. If Lucid is unable to do this, they will run out of cash in Q4 2024 without a further injection of outside capital. However, as the Saudi Public Investment Fund (PIF) is Lucid’s controlling shareholder with a 60% stake, Lucid has a much higher degree of financial security than most in its current financial position. PIF has invested $5.4 billion into Lucid over the past several years. At the current share price, PIF is significantly underwater on its investment. 

 

  • Distribution: Lucid operates a direct to consumer sales approach currently operates 38 Studios (Sales showrooms) and service centers in North America, 5 in Europe, and 2 in Saudi Arabia. In 2022, Lucid produced 2,811 more vehicles than they delivered, and in 2023, the number was 2,427.  The excess production vs. deliveries over the past two years now amounts to 85% of the actual cars delivered in 2023.  How this excess stock is being managed was not covered in the earnings report.

 

  • Market Cap: Lucid’s market cap has been in a bit of a free fall since going public in 2021. It peaked at $63 billion and sits today at a more modest $7 billion.  The shares have basically moved in the same direction as Newton’s apple over the last several years dropping from $55.21 to $3.00.  Post the most recent earnings release a pair of analysis’ cut their price targets for Lucid to $4 and $4.50 which would indicate they see little if any short term upside.

 

  • Portfolio: Lucid current sells what’s basically a single model in four different trims.  It’s a four door sedan with a starting price of $70k for the RWD and 430 bhp “AIR” model going up to $250k for the AWD 1,234 bhp “Sapphire” model. In late 2024 Lucid is planning to start production of the Gravity SUV with a price tag of $80k  Regarding the Gravity, the CEO Peter Rawlinson, was quoted:

 

“I am confident that the Lucid Gravity will redefine the electric SUV segment with incredible range, superior efficiency, fast charging speed, and interior space that you have to see to believe,” he told analysts. “It will be unlike anything in its class, and it will be massive for Lucid”

 

Which does bring to mind a certain other company that was going to be saved by the launch of an SUV highly touted by its Executive Chairman……

 

As Lucid’s guidance for 2024 production is 9,000 vehicles, slightly up vs. 2023 actual production, but down from the original 2023 guidance, it doesn’t appear that the Gravity will have any material impact on driving revenue until 2025.  However, effectively Lucid’s 2024 results will be based on the current line up of four door sedans which have never hit the guidance numbers.  A mid size vehicle is slated to be launched in 2026 which will allow Lucid to better compete with Tesla.  I was a bit surprised to not hear any mention of a truck in development.

 

The Market: In his comments, Rawlinson did acknowledge that “the macroeconomic and higher interest rate environment impact in this market.” While it is out of his control, this is unlikely to change dramatically in 2024.  In addition, it doesn’t appear that the Government of Saudi Arabia’s commitment to purchase up to 100,000 vehicles over a ten-year period (its actually only a commitment to purchase 50,000 vehicles and an option to purchase up to an additional 50,000 vehicles with no start date indicated) will have much effect on the 2024 numbers.

 

  • Capacity: Lucid currently operates two factories. The newly expanded AMP-1 facility in Arizona, and AMP-2 in Saudi Arabia.  AMP-1 is a fully vertically integrated facility and AMP-2 currently only does final assembly from “knock down” kits shipped from AMP-1.  Construction to expand AMP-2 to a fully integrated facility started in Jan. 2024.  Per the 2022 Annual Report, Lucid should have an estimated production capacity of 90,000 units per year installed capacity within 2024.  Lucid’s current 2024 guidance calls for production of 9,000 units.

 

 

Summary

While Lucid might have great, market leading technology, that isn’t always a winning hand.  Just ask the team at Sony that developed the Betamax. Right now, Lucid is burning through cash at a rate that would even make their recently signed strategic technology partner blush.  Lucid has built capacity to manufacturer 10X the number of cars they are estimating they will produce in 2024.  Capex in 2024 will be up by over 50% and where the funding for this will come from is a bit of a mystery.  One area where Lucid has driven growth is on the expense line with SG&A up in 2023 despite revenues being down.  The big bet is that the Gravity SUV will be a game changer and at least provide a bridge until a mid-size vehicle comes on line in 2026.  It would also be interesting to know what has happened to the extra 5,238 cars that Lucid has produced in the last 2 years but not delivered.  Right now, Lucid is a company very dependent on its largest shareholder for survival.  How patient they are and how long they give Lucid to make it will be interesting to watch.

 

Final Note: About a year ago, PIF held significant stakes in Lucid, McLaren, Aston Martin Lagonda and Pagani.  At that time, I did wonder if PIF had a master plan and was going to buy out the lot and merge them all into one luxury/Supercar company which would be able to compete with Ferrari across the board.  It would have been a very audacious plan, but with the right management and funding, it could have worked.  Since then, PIF has sold its stake in McLaren and seems to have no more interest in taking over Aston Martin than Mercedes does (i.e. none).  So much for great theoretical master plans.

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February 2024

 

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3 Thoughts on Analysis of Lucid’s 2023 Results
    John.
    25 Feb 2024
     4:47pm

    It seems the PIF fund is one to just get rid of all that pesky money the oil brings to their country.

    Saudi even buys cheap Russian oil to use domestically so that it can save its own to sell globally, to countries that won’t buy Russian oil. Although even then, some of that Russian oil is finding its way into the market…

    These are dot-com type figures of values dropping. A stampede to find the next Tesla, but when they don’t find gold in the Klondike they’re left looking at dirt.

    Why you’d then create a factory in Saudi, a country with a huge oil appetite, is a mystery to me. The Saudis don’t want to work, few of the oil rich Arab nations do. They either import skilled works and pay them handsomely, or the cheapest workers from Asia boarded up in dormitories that’s the modern equivalent of slavery.

    Its all very strange to me.

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    Christian Lorenzen
    25 Feb 2024
     7:10pm

    Lucid was a rising star in the premium EV market, but that market is going off growth very quickly as Gouvernement subsidies and general interest in EVs is fading. Even Daimler Benz stated last week that they would continue producing ICE powered cars long into the future as EV demand seems to be slowing. Lucid is a dead fish in the water.

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