Lucid Group: Buy, Sell, or Hold?

Lucid Group (LCID 9.09%) is an up-and-coming electric vehicle (EV) maker that has attracted a lot of investor attention since merging with a special purpose acquisition company (SPAC) three years ago. The EV maker boasts a driving range well above its competition and aims to take on companies like Tesla with its luxury vehicles.

Lucid stands to benefit from the growing demand for EVs, but it has taken some time to start producing them. This raises another concern: It has repeatedly raised capital to ensure it has enough funding to keep moving forward. If you’re considering an investment in the young EV company, consider the following facts first.

Lucid’s technological advantage

Lucid Group has a couple of advantages. First, it focuses on manufacturing luxury vehicles. By focusing on creating a premium brand, Lucid wants to attract a customer base that is more resilient to economic cycles. To do so, it aims to provide its customers with a high-quality experience, but building an enviable brand from scratch takes time.

Another key selling point for Lucid is that its vehicles offer a more extended range than their peers. Its flagship Lucid Air Pure model, which costs $69,900, has a range of 420 miles and 430 horsepower. Its Grand Touring, one of its more expensive models, costs $110,900 and has a driving range of up to 512 miles. Its fast charging technology could add 200 miles of range in 12 minutes.

Image source: Lucid Group.

Lucid has a technological edge over competitors, but the business side has taken a while to develop. When it first went public, the company projected 49,000 vehicle sales by 2023. Those goals proved a little too optimistic. Last year, the company sold 6,000 vehicles and pushed back the launch date of its second vehicle, the Gravity SUV, by a year.

Production is growing, but it continues to burn cash

Lucid delivered 2,394 vehicles in the second quarter, a 70% increase from last year. It also produced 2,110 vehicles in the quarter and is on track for 9,000 vehicles by the end of this year. Its Lucid Air sales are trending in the right direction, and in Q2, it had $200.5 million in revenue, representing a 33% increase year over year.

That said, the company’s cash burn rate is a primary concern. Through the first six months of this year, Lucid’s loss from operations is $1.5 billion, a modest improvement from its $1.6 billion loss last year. Meanwhile, its net cash used in operating activities was $1 billion, which improved from last year’s $1.5 billion.

LCID Revenue (TTM) data by YCharts.

Funding and liquidity are vital for young upstart companies like Lucid. Last month, the company received positive news when the Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund, invested another $1.5 billion in the EV maker.

The liquidity injection brings the PIF’s investment in Lucid to about $7.9 billion since 2018 and shows the fund’s long-term commitment to the EV company. According to management, the move pushed Lucid’s liquidity to $4.28 billion, extending its cash runway through the end of 2025.

Buy, sell, or hold Lucid Group?

Lucid Group is an intriguing company that has developed exciting battery technology that’s pushing the limits of EVs as we know it. Last year, it reached a long-term arrangement with Aston Martin, giving it access to its powertrain, battery system, and software technology. In return, Lucid received 28 million shares in Aston Martin and a cash installment payment of $33 million, with $99 million due over the next three years.

The company stands to benefit from long-term tailwinds for EVs. According to projections from the consulting firm PwC, the number of EVs in the U.S. could reach 27 million by 2030 and 92 million by 2040. If Lucid can gain its footing and generate positive cash flows, it has a real chance to grow rapidly alongside this market.

The company is taking steps to rein in costs and improve margins. That said, it will likely require further investments from the PIF to keep things going, and investors will want to continue monitoring its progress on sales and production along with its cash burn. One thing I’d like to see is a clearer path to profitability for the luxury EV maker. Until then, investors can afford to wait patiently on the sidelines with this stock.