Can electric vehicle maker Lucid (NASDAQ:LCID) survive the current market downturn?
The Newark, California-based company’s life as a public company has gotten off to a rocky start. The company went public in January 2021 via a reverse merger with a special-purpose acquisition company (SPAC) at the height of that craze only to see its share price fall steeply amid the market downturn that took hold last fall.
Now trading at just under $20 a share, LCID stock is more than 70% below its all-time high of $57.75 reached last November before market sentiment soured. While much of the decline can be attributed to the market downturn over the last eight months, Lucid’s stock has also been brought down by several internal issues at the company, including an investigation by the U.S. Securities and Exchange Commission (SEC) and lowered production targets.
Last December, Lucid Motors announced that it had received a subpoena from the SEC and been notified that the Wall Street regulator is investigating its SPAC deal that brought the company to the public market. While Lucid is one of several electric vehicle start-ups to have their SPAC deal scrutinized by the SEC, LCID stock nevertheless fell 20% on news of the regulatory probe. The company has said that it is cooperating with the investigation, but there has been little news in recent months about the SEC investigation or when it might be resolved, leaving a cloud hanging over the company and its stock.
At the same time, Lucid Motors has cut its production targets for this year, blaming supply chain constraints that are making it difficult to source needed parts for its luxury electric sedan. Lucid said it now expects to produce 12,000 to 14,000 vehicles for all of this year, down from earlier estimates of 20,000. Last year, Lucid managed to produce and deliver a total of 125 electric cars, falling short of the company’s stated goal to deliver 577 vehicles during 2021.
Lucid maintains that its goal is to eventually produce 365,000 vehicles a year at its manufacturing plant in Arizona. But the timing for when that goal might be achieved is not clear. Lucid announced at the end of May that it has replaced its vice president of manufacturing. In the fourth quarter of 2021, Lucid reported a net loss of $1.05 billion, more than triple its loss from the year earlier period.
While the sledding has been tough for Lucid, the company is taking steps to help it survive the difficult times. Specifically, the company has announced price increases for its luxury electric cars to offset rising material costs and costs related to the supply chain issues it is struggling to manage. Lucid Motors is lifting the price for an entry level Air Pure sedan by $10,000 to nearly $90,000 for the base model before tax credits are applied. The company has also announced a new $1 billion revolving credit facility to help it fund its fast growing operations in the face of economic and market headwinds.
It should also be mentioned that Lucid currently has more than $5 billion in cash on its balance sheet, which can also help the company continue to operate through the end of 2023. The company is also building a new manufacturing plant in Saudi Arabia that is expected to be operational in 2025 and produce an additional 150,000 electric vehicles a year. (Saudi Arabia’s Public Investment Fund owns 61% of Lucid). Investors would also be interested to know that LCID stock is being added to the Russell 3000 index as of June 24, a development that could prove to be a catalyst for the share price. The Russell 3000 measures the performance of the 3,000 largest publicly held companies in the U.S. and claims to be a benchmark of the entire U.S stock market.
Keep An Eye On LCID Stock
While Lucid Motors has faced some troubling issues since going public last year, there is reason to remain optimistic about the company’s future. Lucid has enough cash on hand and credit to help it along until it can resolve its manufacturing issues and scale the deliveries of its high-end electric vehicles. The company also has some deep-pocketed backers and is taking steps to bolster its revenues.
While Lucid Motors still has a long drive ahead of it to overcome its growing pains and reach profitability, there does appear to be some light at the end of the tunnel. As such, investors should keep an eye on Lucid Motors. It’s still too early to buy LCID stock, but in the long run, the company could prove to be a winner in the electric vehicle space.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.