Luxury EV maker Lucid seems to have a requirement drawback

Luxury EV maker Lucid appears to have a demand problem

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People check drive Dream Edition P and Dream Edition R electrical autos on the Lucid Motors plant in Casa Grande, Arizona, September 28, 2021.

Caitlin O’Hara | Reuters

Luxury electrical automobile maker Lucid seems to have a requirement drawback.

The firm 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, on condition that the corporate had claimed “over 34,000” reservations in November and delivered fewer than 2,000 autos within the fourth quarter.

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

Shares of the corporate have fallen about 15% because the Wednesday report.

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

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

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“We’ve solved production. That is not the gating issue here now,” Rawlinson stated. “My focus is on sales. And here’s the thing: We’ve got what I believe to be the very best product in the world. … Too few people are aware of not just the car, but even the company.”

Rawlinson went on to say he believes that to be an “entirely solvable problem” and plans to concentrate on “amplifying customer awareness” in 2023.

More advertising and marketing would possibly assist. But clearly, demand for Lucid’s autos is not materializing as rapidly as the corporate anticipated, which raises some robust questions for buyers.

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 “total addressable market,” and it seems the corporate’s estimates on that entrance might have been too rosy, on condition that its manufacturing facility is ready as much as produce many extra autos than it is constructing now.

Running an auto manufacturing facility properly beneath capability is not precisely a path to profitability, as Chief Financial Officer Sherry House conceded throughout Lucid’s earnings name.

“As we produce vehicles at low volumes on production lines designed for higher volumes, we have and we will continue to experience negative gross profit related to labor and overhead costs,” House stated.

That results in a second, associated query: How lengthy will Lucid must run its manufacturing facility at a loss? Or, put one other approach, 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?

Bank of America analyst John Murphy has lengthy been bullish on Lucid, however in a word to buyers following Lucid’s earnings report, he reduce 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 increase extra capital earlier than he had beforehand anticipated.

The excellent news is that Lucid has a deep-pocketed investor. Saudi Arabia’s Public Investment Fund owns about 62% of Lucid, and has proven — most lately in December, when it invested an extra $915 million — that it is nonetheless keen to fund the corporate. As lengthy because it has the Saudi fund’s backing, Lucid ought to be capable to maintain going.

But the street to profitability — and to an enormous payday for Lucid’s buyers — is now trying longer.