People test drive the Dream Edition P and Dream Edition R electric vehicles at the Lucid Motors factory in Casa Grande, Arizona on September 28, 2021.
Caitlin O’Hara | Reuters
Manufacturer of luxury electric vehicles Lucid seems to have a demand problem.
The company said in its fourth-quarter earnings report Wednesday that it had “more than 28,000” reservations for its Air sedan as of Feb. 21. That was a surprise, considering the company claimed “over 34,000” reservations in November and delivered less than 2,000 vehicles in the fourth quarter.
Even more surprising: Lucid said it expects to build just 10,000 to 14,000 vehicles in 2023, far fewer than the roughly 27,000 Wall Street analysts had predicted — and the roughly 34,000 vehicles a year the plant from Lucid is configured to build.
Shares of the company have fallen about 15% since Wednesday’s report.
Lucid faced a tough road to get the Air into production. The company has spent much of the first half of 2022 scrambling to secure key components and sort out logistical issues. Now, with production running more or less well, he seems to be facing a new problem: too few of his reservations are turning into orders.
CEO Peter Rawlinson acknowledged this during the results call when he reminded listeners that reservations are not binding.
“We’ve solved the production. It’s not the trigger issue here now,” Rawlinson said. “I focus on sales. And here’s the problem: we have what I think is the best product in the world. … Too few people know not only the car, but even the company.”
Rawlinson went on to say he believes this is a “fully solvable problem” and plans to focus on “amplifying customer awareness” in 2023.
More marketing might help. But it’s clear that demand for Lucid’s vehicles isn’t materializing as quickly as the company expected, raising some tough questions for investors.
First, how big is Lucid’s potential market? Any estimate of Lucid’s potential growth must start with an estimate of the “total addressable market,” and it seems the company’s estimates on that front may have been too optimistic, given that its factory is set up to produce a lot. more vehicles than that are being built now.
Running an auto plant well below capacity isn’t exactly a path to profitability, as CFO Sherry House conceded during Lucid’s earnings call.
“While we produce low volume vehicles on production lines designed for higher volumes, we have and will continue to experience negative gross profit related to labor costs and overhead,” said said House.
This leads to a second related question: how long will Lucid have to run his factory at a loss? Or, put another way, how long will it take Lucid to reach profitability – and how much money will it need to raise by then?
Bank of America analyst John Murphy has long been bullish on Lucid, but in a note to investors following Lucid’s earnings report, he downgraded the bank’s rating on the stock to retain, from purchase. Murphy wrote that he now believes Lucid won’t break even until 2027 and the company will need to raise more capital sooner than he previously anticipated.
The good news is that Lucid has a deep-pocketed investor. Saudi Arabia’s Public Investment Fund owns around 62% of Lucid and has shown – most recently in December, when it invested an additional $915 million – that it is still willing to fund the company. As long as he has the support of the Saudi fund, Lucid should be able to continue.
But the road to profitability — and a big payday for Lucid investors — now seems longer.
