Luxurious EV maker Lucid seems to have a requirement downside

Luxurious electrical automobile maker Lucid seems to have a requirement downside.

The corporate stated throughout its fourth-quarter earnings report Wednesday that it had “over 28,000” reservations for its Air sedan as of Feb. 21. That was a shock, provided that the corporate had claimed “over 34,000” reservations in November and delivered fewer than 2,000 automobiles within the fourth quarter.

Much more shocking: Lucid stated it plans to construct simply 10,000 to 14,000 automobiles in 2023, far fewer than the roughly 27,000 Wall Avenue analysts had anticipated — and than the roughly 34,000 automobiles per 12 months that Lucid’s manufacturing facility is ready as much as construct.

Shares of the corporate have fallen about 15% for the reason that Wednesday report.

Lucid confronted a tough street getting the Air into manufacturing. The corporate spent a lot of the primary half of 2022 scrambling to safe key parts and untangling logistics snags. Now, with manufacturing working kind of easily, it appears to be dealing with a brand new downside: Not sufficient of its reservations are changing to orders.

CEO Peter Rawlinson acknowledged as a lot throughout the earnings name when he reminded listeners that reservations aren’t binding.

“We have solved manufacturing. That’s not the gating subject right here now,” Rawlinson stated. “My focus is on gross sales. And this is the factor: We have what I imagine to be the perfect product on the earth. … Too few persons are conscious of not simply the automobile, however even the corporate.”

Rawlinson went on to say he believes that to be an “completely solvable downside” and plans to deal with “amplifying buyer consciousness” in 2023.

Extra advertising would possibly assist. However clearly, demand for Lucid’s automobiles is not materializing as rapidly as the corporate anticipated, which raises some powerful questions for traders.

First, how huge is Lucid’s potential market? Any estimate of how a lot Lucid might develop has to start out with an estimate of the “complete addressable market,” and it seems the corporate’s estimates on that entrance could have been too rosy, provided that its manufacturing facility is ready as much as produce many extra automobiles than it is constructing now.

Operating an auto manufacturing facility effectively under capability is not precisely a path to profitability, as Chief Monetary Officer Sherry Home conceded throughout Lucid’s earnings name.

“As we produce automobiles at low volumes on manufacturing traces designed for greater volumes, we have now and we’ll proceed to expertise unfavorable gross revenue associated to labor and overhead prices,” Home stated.

That results in a second, associated query: How lengthy will Lucid should run its manufacturing facility at a loss? Or, put one other manner, how lengthy will it take Lucid to get to profitability — and the way a lot cash will it have to boost between every now and then?

Financial institution of America analyst John Murphy has lengthy been bullish on Lucid, however in a word to traders following Lucid’s earnings report, he minimize the financial institution’s score on the inventory to carry, from purchase. Murphy wrote that he now thinks Lucid will not break even earlier than 2027, and that the corporate might want to elevate extra capital before he had beforehand anticipated.

The excellent news is that Lucid has a deep-pocketed investor. Saudi Arabia’s Public Funding Fund owns about 62% of Lucid, and has proven — most just lately in December, when it invested an extra $915 million — that it is nonetheless prepared to fund the corporate. So long as it has the Saudi fund’s backing, Lucid ought to have the ability to preserve going.

However the street to profitability — and to a giant payday for Lucid’s traders — is now trying longer.